Non-Microstructure Noise

43 Pages Posted: 16 Aug 2018 Last revised: 24 Oct 2020

See all articles by Ranjan R. Chakravarty

Ranjan R. Chakravarty

School of Business Management, NMIMS

Sudhanshu Sekhar Pani

School of Business Management, NMIMS

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Date Written: July 29, 2018

Abstract

High resolution Ultra High Frequency (UHF) quotes and trades are examined to detect patterns which do not correspond to plausible market activity as in Brownlees and Gallo (2006). Non-microstructure noise is identified as a process. Methods of treatment are evaluated. A resultant paradigm of data handling is presented. Empirical evidence from a sample of NASDAQ stocks demonstrates that the removal of non-microstructure noise from the limit order book significantly improves estimation across techniques and all levels of market depth.

Keywords: Robustification, Ultra High Frequency, Data Handling, Microstructure Noise, Non-Microtructure Noise, Data Cleaning, Empirical Estimation, Limit Order Book, Bid Ask Spread, Trades and Quotes, Information Content

JEL Classification: C01, C32, G1

Suggested Citation

Chakravarty, Ranjan and Pani, Sudhanshu Sekhar, Non-Microstructure Noise (July 29, 2018). Available at SSRN: https://ssrn.com/abstract=3222147 or http://dx.doi.org/10.2139/ssrn.3222147

Ranjan Chakravarty

School of Business Management, NMIMS ( email )

V. L. Mehta Road,
Vile Parle (W),
Mumbai, 400 056
India

Sudhanshu Sekhar Pani (Contact Author)

School of Business Management, NMIMS ( email )

V. L. Mehta Road,
Vile Parle (W),
Mumbai, 400 056
India

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