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Author: Peter Reinhard Hansen
Publisher:
ISBN:
Category :
Languages : en
Pages : 58
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Book Description
We study market microstructure noise in high-frequency data and analyze its implications for the realized variance (RV) under a general specification for the noise. We show that kernel-based estimators can unearth important characteristics of marketmicrostructure noise and that a simple kernel-based estimator dominates the RV for the estimation of integrated variance (IV). An empirical analysis of the Dow Jones Industrial Average stocks reveals that market microstructure noise is time-dependent and correlated with increments in the efficient price. This has important implications for volatility estimation based on high-frequency data. Finally, we apply cointegration techniques to decompose transaction prices and bid-ask quotes into an estimate of the efficient price and noise. This framework enables us to study the dynamic effects on transaction prices and quotes caused by changes in the efficient price.
Author: Peter Reinhard Hansen
Publisher:
ISBN:
Category :
Languages : en
Pages : 58
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Book Description
We study market microstructure noise in high-frequency data and analyze its implications for the realized variance (RV) under a general specification for the noise. We show that kernel-based estimators can unearth important characteristics of marketmicrostructure noise and that a simple kernel-based estimator dominates the RV for the estimation of integrated variance (IV). An empirical analysis of the Dow Jones Industrial Average stocks reveals that market microstructure noise is time-dependent and correlated with increments in the efficient price. This has important implications for volatility estimation based on high-frequency data. Finally, we apply cointegration techniques to decompose transaction prices and bid-ask quotes into an estimate of the efficient price and noise. This framework enables us to study the dynamic effects on transaction prices and quotes caused by changes in the efficient price.
Author: Peter Reinhard Hansen
Publisher:
ISBN:
Category :
Languages : en
Pages : 23
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Book Description
This rejoinder clarifies issues related to the features of market microstructure noise. Specifically, we show that pre-processing of high-frequency data is very useful for the estimation of quadratic variation. We also document a strong relationship between quadratic variation and the number of transactions.
Author: Kim Christensen
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Author: P. C. B. Phillips
Publisher:
ISBN:
Category : Securities
Languages : en
Pages : 15
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Book Description
Agrees with the thrust of Hansen and Lund's message concerning the complexity induced by microstructure noise. In particular, the authors agree that noise is time dependent and correlated with the efficient price and that microstructure noise cannot be accomodated by simple specifications.
Author: Tommi A. Vuorenmaa
Publisher:
ISBN:
Category :
Languages : en
Pages : 48
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Book Description
This paper carefully examines the effect of decimalization on volatility and market microstructure noise. We apply several nonparametric estimators in order to accurately measure volatility and market microstructure noise variance before and after the final stage of decimalization which, on the NYSE, took place in January, 2001. We findn that decimalization decreased observed volatility by decreasing noise variance and, consequently, increased the significance of the true signal especially in trade price data for the highly active Dow Jones stocks. This study also reveals some differences between volatility and noise variance estimators' capability to handle changes in tick size and strategic order placing that are relevant in the evaluation of the decimalization effects. The ability of the realized kernel estimator to adapt to more complex data dependency than the traditional realized volatility estimator is useful. The two-scale and multi-scale realized volatility estimates turn out to be more variable especially with midquote data where a couple of outlying dates affect their volatility estimates and consequently the test results in a significant way.
Author: Yacine Ait-Sahalia
Publisher:
ISBN:
Category :
Languages : en
Pages : 43
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Book Description
We analyze the impact of time series dependence in market microstructure noise on the properties of estimators of the integrated volatility of an asset price based on data sampled at frequencies high enough for that noise to be a dominant consideration. We show that combining two time scales for that purpose will work even when the noise exhibits time series dependence, analyze in that context a refinement of this approach based on multiple time scales, and compare empirically our different estimators to the standard realized volatility.
Author: Ulrich Hounyo
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Author: Torben G. Andersen
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
We extend the classical "martingale-plus-noise" model for high-frequency prices by an error correction mechanism originating from prevailing mispricing. The speed of price reversal is a natural measure for informational efficiency. The strength of the price reversal relative to the signal-to-noise ratio determines the signs of the return serial correlation and the bias in standard realized variance estimates. We derive the model's properties and locally estimate it based on mid-quote returns of the NASDAQ 100 constituents. There is evidence of mildly persistent local regimes of positive and negative serial correlation, arising from lagged feedback effects and sluggish price adjustments. The model performance is decidedly superior to existing stylized microstructure models. Finally, we document intraday periodicities in the speed of price reversion and noise-to-signal ratios.
Author: Yacine Aït-Sahalia
Publisher:
ISBN: 9783865580849
Category : Assets (Accounting)
Languages : de
Pages : 41
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Book Description
We analyze the impact of time series dependence in market microstructure noise on the properties of estimators of the integrated volatility of an asset price based on data sampled at frequencies high enough for that noise to be a dominant consideration. We show that combining two time scales for that purpose will work even when the noise exhibits time series dependence, analyze in that context a refinement of this approach based on multiple time scales, and compare empirically our different estimators to the standard realized volatility.
Author: Peter Reinhard Hansen
Publisher:
ISBN:
Category :
Languages : en
Pages : 27
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Book Description
The realized variance (RV) is known to be biased because intraday returns are contaminated with market microstructure noise, in particular if intraday returns are sampled at high frequencies. In this paper, we characterize the bias under a general specification for the market microstructure noise, where the noise may be autocorrelated and need not be independent of the latent price process. Within this framework, we propose a simple Newey-West type correction of the RV that yields an unbiased measure of volatility, and we characterize the optimal unbiased RV in terms of the mean squared error criterion. Our empirical analysis of the 30 stocks of the Dow Jones Industrial Average index shows the necessity of our general assumptions about the noise process. Further, the empirical results show that the modified RV is unbiased even if intraday returns are sampled every second.
