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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.
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.
Author: Roel C. A. Oomen
Publisher:
ISBN:
Category :
Languages : en
Pages : 22
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Book Description
In this paper I study the statistical properties of a bias corrected realized variance measure when high frequency asset prices are contaminated with market microstructure noise. The analysis is based on a pure jump process for asset prices and explicitly distinguishes among different sampling schemes, including calendar time, business time, and transaction time sampling. Two main findings emerge from the theoretical and empirical analysis. Firstly, based on the mean squared error criterion, a bias correction to realized variance allows for the more efficient use of higher frequency data than the conventional realized variance estimator. Secondly, sampling in business time or transaction time is generally superior to the common practice of calendar time sampling in that it leads to a further reduction in mean squared error. Using IBM transaction data, I estimate a 2.5 minute optimal sampling frequency for realized variance in calendar time which drops to about 12 seconds when a first order bias correction is applied. This results in a more than 65% reduction in mean squared error. If in addition prices are sampled in transaction time, a further reduction of about 20% can be achieved.
Author: Bart Frijns
Publisher:
ISBN:
Category :
Languages : en
Pages : 38
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Book Description
It is a well known fact that at high sampling frequencies, the contamination of microstructure noise causes the Realized Variance to be a biased measure of the Integrated Variance. Recent developments in this field propose sampling on lower frequencies, sub-sampling techniques, or bias corrections using the autocorrelation patterns in the data. In this paper we propose a structural decomposition of the efficient price process and the microstructure noise. At the highest sampling frequency, we allow for potential correlation between the efficient price and the microstructure noise. For 20 actively traded stocks at Nasdaq, we find that the method provides a lower bound on Realized Variance. Applying a recently introduced bias correction reveals a very long persistence in transaction by transaction returns corrects the Realized Variance upwards to a level equal to low frequency Realized Variance. It remains questionable, however, whether this long persistence should be seen as microstructure noise, or is an inherent feature of the price process.
Author: Karim Bannouh
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
We introduce a heuristic bias-adjustment for the transaction price-based realized range estimator of daily volatility in the presence of bid-ask bounce and non-trading. The adjustment is an extension of the estimator proposed in Christensen et al. (2009). We relax the assumption that all intra-day high (low) transaction prices are at the ask (bid) quote. Using data-based simulations we obtain estimates of the probability that a given intraday range is (upward or downward) biased or not, which we use for a more refined bias-adjustment of the realized range estimator. Both Monte Carlo simulations and an empirical application involving a liquid and a relatively illiquid S&P500 constituent demonstrate that ex post measures and ex ante forecasts based on the heuristically adjusted realized range compare favorably to existing bias-adjusted (two time scales) realized range and (two time scales) realized variance estimators.
Author: Michiel de Pooter
Publisher: Rozenberg Publishers
ISBN: 9051709153
Category :
Languages : en
Pages : 286
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Book Description
This dissertation consists of a collection of studies on two areas in quantitative finance: asset return volatility and the term structure of interest rates. The first part of this dissertation offers contributions to the literature on how to test for sudden changes in unconditional volatility, on modelling realized volatility and on the choice of optimal sampling frequencies for intraday returns. The emphasis in the second part of this dissertation is on the term structure of interest rates.
Author: Adrian R. Bell
Publisher: Edward Elgar Publishing
ISBN: 0857936093
Category : Business & Economics
Languages : en
Pages : 494
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Book Description
This impressive Handbook presents the quantitative techniques that are commonly employed in empirical finance research together with real-world, state-of-the-art research examples. Written by international experts in their field, the unique approach describes a question or issue in finance and then demonstrates the methodologies that may be used to solve it. All of the techniques described are used to address real problems rather than being presented for their own sake, and the areas of application have been carefully selected so that a broad range of methodological approaches can be covered. The Handbook is aimed primarily at doctoral researchers and academics who are engaged in conducting original empirical research in finance. In addition, the book will be useful to researchers in the financial markets and also advanced Masters-level students who are writing dissertations.
Author: Thomas B. Fomby
Publisher: Emerald Group Publishing
ISBN: 0762312742
Category : Business & Economics
Languages : en
Pages : 407
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Book Description
Talks about the time varying betas of the capital asset pricing model, analysis of predictive densities of nonlinear models of stock returns, modelling multivariate dynamic correlations, flexible seasonal time series models, estimation of long-memory time series models, application of the technique of boosting in volatility forecasting, and more.
Author: Stavros Degiannakis
Publisher: Springer
ISBN: 1137396490
Category : Business & Economics
Languages : en
Pages : 411
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Book Description
The global financial crisis has reopened discussion surrounding the use of appropriate theoretical financial frameworks to reflect the current economic climate. There is a need for more sophisticated analytical concepts which take into account current quantitative changes and unprecedented turbulence in the financial markets. This book provides a comprehensive guide to the quantitative analysis of high frequency financial data in the light of current events and contemporary issues, using the latest empirical research and theory. It highlights and explains the shortcomings of theoretical frameworks and provides an explanation of high-frequency theory, emphasising ways in which to critically apply this knowledge within a financial context. Modelling and Forecasting High Frequency Financial Data combines traditional and updated theories and applies them to real-world financial market situations. It will be a valuable and accessible resource for anyone wishing to understand quantitative analysis and modelling in current financial markets.
Author: Antoine Petrus Cornelius van der Ploeg
Publisher: Rozenberg Publishers
ISBN: 9051705778
Category :
Languages : en
Pages : 358
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Book Description
Author: Neil Shephard
Publisher: Oxford University Press, USA
ISBN: 0199257205
Category : Business & Economics
Languages : en
Pages : 534
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Book Description
Stochastic volatility is the main concept used in the fields of financial economics and mathematical finance to deal with time-varying volatility in financial markets. This work brings together some of the main papers that have influenced this field, andshows that the development of this subject has been highly multidisciplinary.
