Adaptive Realized Kernels
Journal of Financial Econometrics, Vol. 0, No. 0, 1-41, 2014
40 Pages Posted: 23 Aug 2009 Last revised: 13 Apr 2016
Date Written: May 5, 2014
We design adaptive realized kernels to estimate the integrated volatility in a framework that combines a stochastic volatility model with leverage effect for the efficient price and a semiparametric microstructure noise model specified at the highest frequency. Some time dependence parameters of the noise model must be estimated before adaptive realized kernels can be implemented. We study their performance by simulation and illustrate their use with twelve stocks listed in the Dow Jones Industrial. As expected, we find that adaptive realized kernels achieves the optimal trade-off between the discretization error and the microstructure noise.
Keywords: Integrated Volatility, Method of Moment, Microstructure Noise, Realized Kernel, Shrinkage
JEL Classification: C13, C14, G10
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