Realised Kernels in Practice: Trades and Quotes
32 Pages Posted: 28 May 2008
Date Written: May 28, 2008
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: Suggested Citation