Realised Kernels in Practice: Trades and Quotes

32 Pages Posted: 28 May 2008

See all articles by Ole E. Barndorff-Nielsen

Ole E. Barndorff-Nielsen

University of Aarhus - Thiele Centre, Department of Mathematical Sciences

Peter Reinhard Hansen

University of North Carolina (UNC) at Chapel Hill - Department of Economics; Copenhagen Business School, Finance; Aarhus University - CREATES

Asger Lunde

Aarhus University - School of Economics and Management; CREATES

Neil Shephard

Harvard University

Date Written: May 28, 2008

Abstract

Realised kernels use high frequency data to estimate daily volatility of individual stock prices. They can be applied to either trade or quote data. Here we provide the details of how we suggest implementing them in practice. We compare the estimates based on trade and quote data for the same stock and find a remarkable level of agreement.

We identify some features of the high frequency data which are challenging for realised kernels. They are when there are local trends in the data, over periods of around 10 minutes, where the prices and quotes are driven up or down. These can be associated with high volumes. One explanation for this is that they are due to non-trivial liquidity effects.

Keywords: HAC estimator, Long run variance estimator, Market frictions, Quadratic variation

JEL Classification: C01, C12, C32

Suggested Citation

Barndorff-Nielsen, Ole E. and Hansen, Peter Reinhard and Lunde, Asger and Shephard, Neil, Realised Kernels in Practice: Trades and Quotes (May 28, 2008). Available at SSRN: https://ssrn.com/abstract=1138418 or http://dx.doi.org/10.2139/ssrn.1138418

Ole E. Barndorff-Nielsen

University of Aarhus - Thiele Centre, Department of Mathematical Sciences ( email )

Ny Munkegade
Aarhus, DK 8000
Denmark

Peter Reinhard Hansen (Contact Author)

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Chapel Hill, NC 27599
United States

HOME PAGE: http://https://sites.google.com/site/peterreinhardhansen/

Copenhagen Business School, Finance ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

Aarhus University - CREATES ( email )

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

Asger Lunde

Aarhus University - School of Economics and Management ( email )

Aarhus
Denmark

CREATES ( email )

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

Neil Shephard

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

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