Arbeitspapier

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

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.

Language
Englisch

Bibliographic citation
Series: Technical Report ; No. 2006,52

Classification
Econometric and Statistical Methods and Methodology: General
Data Collection and Data Estimation Methodology; Computer Programs: General
Single Equation Models; Single Variables: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
Subject
Bias-Correction
Integrated Variance
Market Microstructure Noise
Realized Range-Based Variance
Realized Variance

Event
Geistige Schöpfung
(who)
Christensen, Kim
Podolskij, Mark
Vetter, Mathias
Event
Veröffentlichung
(who)
Universität Dortmund, Sonderforschungsbereich 475 - Komplexitätsreduktion in Multivariaten Datenstrukturen
(where)
Dortmund
(when)
2006

Handle
Last update
10.03.2025, 11:41 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Christensen, Kim
  • Podolskij, Mark
  • Vetter, Mathias
  • Universität Dortmund, Sonderforschungsbereich 475 - Komplexitätsreduktion in Multivariaten Datenstrukturen

Time of origin

  • 2006

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