A Realized Variance for the Whole Day Based on Intermittent High-Frequency Data

Hansen, Peter Reinhard; Lunde, Asger

doi:10.2139/ssrn.531422

Download This Paper

Open PDF in Browser

Add Paper to My Library

A Realized Variance for the Whole Day Based on Intermittent High-Frequency Data

29 Pages Posted: 16 Apr 2004

See all articles by Peter Reinhard Hansen

Peter Reinhard Hansen

University of North Carolina (UNC) at Chapel Hill - Department of Economics; Copenhagen Business School, Finance; Aarhus University - CREATES

Asger Lunde

Aarhus University - School of Business and Social Sciences; CREATES

There are 2 versions of this paper

Date Written: June 2005

Abstract

We consider the problem of deriving an empirical measure of daily integrated variance (IV) in the situation where high-frequency price data are unavailable for part of the day. We study three estimators in this context and characterize the assumptions that justify their use. We show that the optimal combination of the realized variance and squared overnight return can be determined, despite the latent nature of IV, and we discuss this result in relation to the problem of combining forecasts. Finally, we apply our theoretical results and construct four years of daily volatility estimates for the 30 stocks of the Dow Jones Industrial Average.

Keywords: Realized Variance, High-Frequency Data, Market Microstructure Noise

JEL Classification: C10, C22, C80

Suggested Citation: Suggested Citation

Hansen, Peter Reinhard and Lunde, Asger and Lunde, Asger, A Realized Variance for the Whole Day Based on Intermittent High-Frequency Data (June 2005). Available at SSRN: https://ssrn.com/abstract=531422 or http://dx.doi.org/10.2139/ssrn.531422