Efficient Multipowers

43 Pages Posted: 8 Feb 2016

See all articles by Aleksey Kolokolov

Aleksey Kolokolov

University of Manchester - Manchester Business School

Roberto Renò

University of Verona - Department of Economics

Date Written: January 21, 2016

Abstract

We show how to minimize the asymptotic variance of multipower estimators using a linear combination of optimal powers. Taking advantage of the lower variance provided by this technique allows to build superior estimators of integrated volatility powers. In particular, we focus on a new efficient quarticity estimator and we show, using simulated data, that we can drastically reduce the mean square error of traditional estimators. The implementation on US stock prices corroborates our theoretical findings and further shows that efficient quarticity noticeably reduces the number of detected jumps, and improves the quality of volatility forecasts.

Keywords: Efficiency, Volatility, Jumps, Quarticity, Multipower, Threshold

JEL Classification: C58, G1

Suggested Citation

Kolokolov, Aleksey and Renò, Roberto, Efficient Multipowers (January 21, 2016). Available at SSRN: https://ssrn.com/abstract=2728438 or http://dx.doi.org/10.2139/ssrn.2728438

Aleksey Kolokolov (Contact Author)

University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Roberto Renò

University of Verona - Department of Economics ( email )

Via dell'Artigliere, 8
37129 Verona
Italy

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