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Volatility and Covariation Estimation When Microstructure Noise and Trading Times are Endogenous

32 Pages Posted: 21 Jan 2012  

Christian Yann Robert

affiliation not provided to SSRN

Mathieu Rosenbaum

affiliation not provided to SSRN

Date Written: January 2012

Abstract

This paper considers practically appealing procedures for estimating intraday volatility measures of financial assets. The underlying microstructure model accommodates the inherent properties of ultra high‐frequency data with the assumption of continuous efficient price processes. In this model, microstructure noise and trading times are endogenous but do not only depend on the prices. Using the (observed) last traded prices of the assets, we develop a new approach that enables to approximate the values of the efficient prices at some random times. Based on these approximated values, we build an estimator of the integrated volatility and give its asymptotic theory. We also give a consistent estimator of the integrated covariation when two assets (asynchronous by construction of the model) are observed.

Keywords: microstructure noise, ultra high‐frequency data, volatility, covariation, endogenous trading times, asynchronous data, stopping times, martingales

Suggested Citation

Robert, Christian Yann and Rosenbaum, Mathieu, Volatility and Covariation Estimation When Microstructure Noise and Trading Times are Endogenous (January 2012). Mathematical Finance, Vol. 22, Issue 1, pp. 133-164, 2012. Available at SSRN: https://ssrn.com/abstract=1989281 or http://dx.doi.org/10.1111/j.1467-9965.2010.00454.x

Christian Yann Robert (Contact Author)

affiliation not provided to SSRN

No Address Available

Mathieu Rosenbaum

affiliation not provided to SSRN

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