Abstract

http://ssrn.com/abstract=642323
 
 

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Separating Microstructure Noise from Volatility


Federico M. Bandi


University of Chicago - Booth School of Business

Jeffrey R. Russell


University of Chicago - Booth School of Business - Econometrics and Statistics

February 19, 2004

AFA 2005 Philadelphia Meetings

Abstract:     
There are two volatility components embedded in the returns constructed using recorded stock prices: the genuine time-varying volatility of the unobservable returns that would prevail (in equilibrium) in a frictionless, full-information, economy and the variance of the equally unobservable microstructure noise. Using straightforward sample averages of high-frequency return data recorded at different frequencies, we provide a simple technique to identify both volatility features. We apply our methodology to a sample of S&P100 stocks.

Number of Pages in PDF File: 49

Keywords: volatility, microstructure noise, high-frequency data

JEL Classification: G12, C14, C22

working papers series


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Date posted: January 2, 2005  

Suggested Citation

Bandi, Federico M. and Russell, Jeffrey R., Separating Microstructure Noise from Volatility (February 19, 2004). AFA 2005 Philadelphia Meetings. Available at SSRN: http://ssrn.com/abstract=642323 or http://dx.doi.org/10.2139/ssrn.642323

Contact Information

Federico Maria Bandi (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-4352 (Phone)
Jeffrey R. Russell
University of Chicago - Booth School of Business - Econometrics and Statistics ( email )
Chicago, IL 60637
United States
773-834-0720 (Phone)
773-702-0458 (Fax)
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