Realized Candlestick Wicks (formerly "Nonparametric Range-Based Estimation of Integrated Variance with Episodic Extreme Return Persistence")

55 Pages Posted: 20 Jul 2023 Last revised: 28 Dec 2023

See all articles by Yifan Li

Yifan Li

The University of Manchester - Alliance Manchester Business School; Lancaster University - Department of Accounting and Finance

Ingmar Nolte

Lancaster University - Department of Accounting and Finance

Sandra Nolte (Lechner)

Lancaster University Management School

Shifan Yu

Lancaster University Management School

Date Written: July 12, 2023

Abstract

We develop a novel nonparametric estimator of integrated variance that utilizes intraday candlestick information, comprised of the high, low, open, and close prices within short time intervals. The range-return-difference volatility (RRDV) estimator is robust to short-lived extreme return persistence hardly attributable to the diffusion component, such as gradual jumps and flash crashes. By modelling such sharp but continuous price movements following some recent theoretical advances, we demonstrate that RRDV can provide consistent estimates with variances about four times smaller than those obtained with the differenced-return volatility (DV) estimator. Monte Carlo simulations and empirical applications further validate the practical reliability of our proposed estimator with some finite-sample refinements.

Keywords: High-Frequency Data, Integrated Variance, Extreme Return Persistence, Drift Burst, Range-Based Volatility Estimation

JEL Classification: C14, C22, C58, G14

Suggested Citation

Li, Yifan and Nolte, Ingmar and Nolte (Lechner), Sandra and Yu, Shifan, Realized Candlestick Wicks (formerly "Nonparametric Range-Based Estimation of Integrated Variance with Episodic Extreme Return Persistence") (July 12, 2023). Available at SSRN: https://ssrn.com/abstract=4507161 or http://dx.doi.org/10.2139/ssrn.4507161

Yifan Li

The University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Lancaster University - Department of Accounting and Finance ( email )

The Management School
Lancaster LA1 4YX
United Kingdom

Ingmar Nolte

Lancaster University - Department of Accounting and Finance ( email )

Lancaster, Lancashire LA1 4YX
United Kingdom

Sandra Nolte (Lechner)

Lancaster University Management School ( email )

Lancaster, Lancashire LA1 4YX
United Kingdom

Shifan Yu (Contact Author)

Lancaster University Management School ( email )

Department of Accounting and Finance
Lancaster University Management School
Lancaster, LA1 4YX
United Kingdom

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