Bias-Correcting the Realized Range-Based Variance in the Presence of Market Microstructure Noise

Kim Christensen (), Mark Podolskij () and Mathias Vetter

No 2006,52, Technical Reports from Technische Universität Dortmund, Sonderforschungsbereich 475: Komplexitätsreduktion in multivariaten Datenstrukturen

Abstract: Market microstructure noise is a challenge to high-frequency based estimation of the integrated variance, because the noise accumulates with the sampling frequency. In this paper, we analyze the impact of microstructure noise on the realized range-based variance and propose a bias-correction to the rangestatistic. The new estimator is shown to be consistent for the integrated variance and asymptotically mixed Gaussian under simple forms of microstructure noise, and we can select an optimal partition of the high-frequency data in order to minimize its asymptotic conditional variance. The finite sample properties of our estimator are studied with Monte Carlo simulations and we implement it on high-frequency data from TAQ. We find that a bias-corrected range-statistic often has much smaller confidence intervals than the realized variance.

Keywords: Bias-Correction; Integrated Variance; Market Microstructure Noise; Realized Range-Based Variance; Realized Variance (search for similar items in EconPapers)
JEL-codes: C10 C22 C80 (search for similar items in EconPapers)
Date: 2006
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Related works:
Journal Article: Bias-correcting the realized range-based variance in the presence of market microstructure noise (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:sfb475:200652

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