High-Frequency Volatility Estimation and the Relative Importance of Market Microstructure Variables PDF Download
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Author: Yifan Li
Publisher:
ISBN:
Category :
Languages : en
Pages : 63
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Book Description
In this paper we examine the relative importance of trading volume, bid-ask spread, order flow, order imbalance, total quote depth, quote depth difference and trading intensity for high-frequency volatility estimation. By using a best subset regression approach, we fi nd that contemporaneous trading intensity and order flow contains the most important information about volatility estimation in general, but the rankings of the importance of the market microstructure (MMS) variables vary between securities. Using a Lognormal Log-Autoregressive Conditional Duration (LL-ACD) model, we show that the inclusion of MMS covariates signi ffcantly improves the goodness-of- fit of the model. Furthermore, we show that the inclusion of MMS covariates in the LL-ACD model leads to substantial improvements in the quality of volatility estimates, both on a daily and an intraday level.
Author: Yifan Li
Publisher:
ISBN:
Category :
Languages : en
Pages : 63
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Book Description
In this paper we examine the relative importance of trading volume, bid-ask spread, order flow, order imbalance, total quote depth, quote depth difference and trading intensity for high-frequency volatility estimation. By using a best subset regression approach, we fi nd that contemporaneous trading intensity and order flow contains the most important information about volatility estimation in general, but the rankings of the importance of the market microstructure (MMS) variables vary between securities. Using a Lognormal Log-Autoregressive Conditional Duration (LL-ACD) model, we show that the inclusion of MMS covariates signi ffcantly improves the goodness-of- fit of the model. Furthermore, we show that the inclusion of MMS covariates in the LL-ACD model leads to substantial improvements in the quality of volatility estimates, both on a daily and an intraday level.
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: 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: Roman Yevstihnyeyev
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Accurate measurement of asset return volatility and correlation is an important problem in financial econometrics. The presence of market microstructure noise in high-frequency data complicates such estimations. This study extends a prior application of a model-based volatility estimator with autocorrelated market microstructure noise to estimation of correlation. The model is applied to a high-frequency dataset including a stock and an index, and the results are compared to some existing models. This study supports previous findings that including an autocorrelation factor produces an estimator potentially less vulnerable to market microstructure noise, and finds that the same is true about the extended correlation estimator that is introduced here.
Author: Yacine Aït-Sahalia
Publisher: Princeton University Press
ISBN: 0691161437
Category : Business & Economics
Languages : en
Pages : 683
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Book Description
A comprehensive introduction to the statistical and econometric methods for analyzing high-frequency financial data High-frequency trading is an algorithm-based computerized trading practice that allows firms to trade stocks in milliseconds. Over the last fifteen years, the use of statistical and econometric methods for analyzing high-frequency financial data has grown exponentially. This growth has been driven by the increasing availability of such data, the technological advancements that make high-frequency trading strategies possible, and the need of practitioners to analyze these data. This comprehensive book introduces readers to these emerging methods and tools of analysis. Yacine Aït-Sahalia and Jean Jacod cover the mathematical foundations of stochastic processes, describe the primary characteristics of high-frequency financial data, and present the asymptotic concepts that their analysis relies on. Aït-Sahalia and Jacod also deal with estimation of the volatility portion of the model, including methods that are robust to market microstructure noise, and address estimation and testing questions involving the jump part of the model. As they demonstrate, the practical importance and relevance of jumps in financial data are universally recognized, but only recently have econometric methods become available to rigorously analyze jump processes. Aït-Sahalia and Jacod approach high-frequency econometrics with a distinct focus on the financial side of matters while maintaining technical rigor, which makes this book invaluable to researchers and practitioners alike.
Author: Charles-albert Lehalle
Publisher: World Scientific
ISBN: 9813231149
Category : Business & Economics
Languages : en
Pages : 366
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Book Description
This book exposes and comments on the consequences of Reg NMS and MiFID on market microstructure. It covers changes in market design, electronic trading, and investor and trader behaviors. The emergence of high frequency trading and critical events like the'Flash Crash' of 2010 are also analyzed in depth.Using a quantitative viewpoint, this book explains how an attrition of liquidity and regulatory changes can impact the whole microstructure of financial markets. A mathematical Appendix details the quantitative tools and indicators used through the book, allowing the reader to go further independently.This book is written by practitioners and theoretical experts and covers practical aspects (like the optimal infrastructure needed to trade electronically in modern markets) and abstract analyses (like the use on entropy measurements to understand the progress of market fragmentation).As market microstructure is a recent academic field, students will benefit from the book's overview of the current state of microstructure and will use the Appendix to understand important methodologies. Policy makers and regulators will use this book to access theoretical analyses on real cases. For readers who are practitioners, this book delivers data analysis and basic processes like the designs of Smart Order Routing and trade scheduling algorithms.In this second edition, the authors have added a large section on orderbook dynamics, showing how liquidity can predict future price moves, and how High Frequency Traders can profit from it. The section on market impact has also been updated to show how buying or selling pressure moves prices not only for a few hours, but even for days, and how prices relax (or not) after a period of intense pressure.Further, this edition includes pages on Dark Pools, Circuit Breakers and added information outside of Equity Trading, because MiFID 2 is likely to push fixed income markets towards more electronification. The authors explore what is to be expected from this change in microstructure. The appendix has also been augmented to include the propagator models (for intraday price impact), a simple version of Kyle's model (1985) for daily market impact, and a more sophisticated optimal trading framework, to support the design of trading algorithms.
Author: Ingmar Nolte
Publisher: Routledge
ISBN: 1317570774
Category : Business & Economics
Languages : en
Pages : 325
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Book Description
This book brings together the latest research in the areas of market microstructure and high-frequency finance along with new econometric methods to address critical practical issues in these areas of research. Thirteen chapters, each of which makes a valuable and significant contribution to the existing literature have been brought together, spanning a wide range of topics including information asymmetry and the information content in limit order books, high-frequency return distribution models, multivariate volatility forecasting, analysis of individual trading behaviour, the analysis of liquidity, price discovery across markets, market microstructure models and the information content of order flow. These issues are central both to the rapidly expanding practice of high frequency trading in financial markets and to the further development of the academic literature in this area. The volume will therefore be of immediate interest to practitioners and academics. This book was originally published as a special issue of European Journal of Finance.
Author: Joel Hasbrouck
Publisher: Oxford University Press
ISBN: 0198041306
Category : Business & Economics
Languages : en
Pages : 209
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Book Description
The interactions that occur in securities markets are among the fastest, most information intensive, and most highly strategic of all economic phenomena. This book is about the institutions that have evolved to handle our trading needs, the economic forces that guide our strategies, and statistical methods of using and interpreting the vast amount of information that these markets produce. The book includes numerous exercises.
Author: Alain P. Chaboud
Publisher:
ISBN:
Category : Exchange rate pass-through
Languages : en
Pages : 58
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Book Description
Using two newly available ultrahigh-frequency datasets, we investigate empirically how frequently one can sample certain foreign exchange and U.S. Treasury security returns without contaminating estimates of their integrated volatility with market microstructure noise. Using volatility signature plots and a recently-proposed formal decision rule to select the sampling frequency, we find that one can sample FX returns as frequently as once every 15 to 20 seconds without contaminating volatility estimates; bond returns may be sampled as frequently as once every 2 to 3 minutes on days without U.S. macroeconomic announcements, and as frequently as once every 40 seconds on announcement days. With a simple realized kernel estimator, the sampling frequencies can be increased to once every 2 to 5 seconds for FX returns and to about once every 30 to 40 seconds for bond returns. These sampling frequencies, especially in the case of FX returns, are much higher than those often recommended in the empirical literature on realized volatility in equity markets. We suggest that the generally superior depth and liquidity of trading in FX and government bond markets contributes importantly to this difference.
Author: Simona Sanfelici
Publisher:
ISBN:
Category :
Languages : en
Pages : 30
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Book Description
We define a new consistent estimator of the integrated volatility of volatility based only on a pre-estimation of the Fourier coefficients of the volatility process. We investigate the finite sample properties of the estimator in the presence of noise contamination by computing the bias of the estimator due to noise and showing that it vanishes as the number of observations increases, under suitable assumptions. In both simulated and empirical studies, the performance of the Fourier estimator with high frequency data is investigated and it is shown that the proposed estimator of volatility of volatility is easily implementable, computationally stable and even robust to market microstructure noise.
