Realised Quantile-Based Estimation of the Integrated Variance
54 Pages Posted: 21 Jan 2008 Last revised: 29 Oct 2010
Date Written: September 1, 2009
In this paper we propose a new jump robust measure of ex-post return variation that can be computed using potentially noisy data. The estimator exploits the link between return quantiles and volatility and is consistent for the integrated (diffusive) variance under weak conditions on the price process. We present various central limit theorems which show that the estimator converges at the best attainable rate and has excellent efficiency. Asymptotically, the estimator is immune to finite activity jumps and simulations show that also in finite sample it has superior robustness properties. In modified form, the estimator is applicable with market micro-structure noise and therefore operational on high frequency data. As such, it constitutes an appealing alternative to the existing jump-robust or noise-corrected realised variance measures. An empirical application using low and high frequency data is included to further illustrate the properties of the estimator.
Keywords: Finite activity jumps, Integrated variance, Market micro-structure noise, Order statistics, Realised variance
JEL Classification: C10, C80
Suggested Citation: Suggested Citation