Mixed Interval Realized Variance: A Robust Estimator of Stock Price Volatility

72 Pages Posted: 18 Apr 2015 Last revised: 5 Jan 2017

See all articles by Max Sutton

Max Sutton

The University of Sydney

Andrey L. Vasnev

University of Sydney

Richard H. Gerlach

University of Sydney

Date Written: December 16, 2016

Abstract

This paper proposes an ex post volatility estimator, called mixed interval realized variance (MIRV), that uses high-frequency data to provide measurements robust to the idiosyncratic noise of stock markets caused by market microstructures. The theoretical properties of the new volatility estimator are illustrated and compared with those of the two currently dominant realized measures: realized volatility and realized range. A simulation study adds to this comparison and highlights some favorable robustness properties of the new estimator when subject to market microstructures. The main finding is that mixed interval realized variance is robust to the presence of microstructures, being superior to realized volatility and realized range in several circumstances, but inconsistent in the hypothetical ideal scenario. The empirical study features Australian stocks from the ASX 20 and provides evidence that the mixed interval realized variance is competitive with other realized measures via several measures, including predictive likelihood when it is included in a Realized GARCH model.

Keywords: volatility, robust estimator

JEL Classification: C58, C22, C53

Suggested Citation

Sutton, Max and Vasnev, Andrey L. and Gerlach, Richard H., Mixed Interval Realized Variance: A Robust Estimator of Stock Price Volatility (December 16, 2016). Available at SSRN: https://ssrn.com/abstract=2595473 or http://dx.doi.org/10.2139/ssrn.2595473

Max Sutton

The University of Sydney ( email )

University of Sydney
Sydney, NC NSW 2006
Australia

Andrey L. Vasnev (Contact Author)

University of Sydney ( email )

Sydney, NSW 2006
Australia

HOME PAGE: http://www.econ.usyd.edu.au/staff/andreyv

Richard H. Gerlach

University of Sydney ( email )

Room 483, Building H04
University of Sydney
Sydney, NSW 2006
Australia
+ 612 9351 3944 (Phone)
+ 612 9351 6409 (Fax)

HOME PAGE: http://www.econ.usyd.edu.au/staff/richardg

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