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Subsampling Realised Kernels

30 Pages Posted: 30 Aug 2006  

Ole E. Barndorff-Nielsen

University of Aarhus - Thiele Centre, Department of Mathematical Sciences

Peter Reinhard Hansen

University of North Carolina (UNC) at Chapel Hill - Department of Economics; University of Aarhus - CREATES

Asger Lunde

University of Aarhus - School of Economics and Management; CREATES

Neil Shephard

Harvard University

Date Written: April 10, 2007

Abstract

In a recent paper we have introduced the class of realised kernel estimators of the increments of quadratic variation in the presence of noise. We showed this estimator is consistent and derived its limit distribution under various assumptions on the kernel weights. In this paper we extend our analysis, looking at the class of subsampled realised kernels and we derive the limit theory for this class of estimators. We find that subsampling is highly advantages for estimators based on discontinuous kernels, such as the truncated kernel. For kinked kernels, such as the Bartlett kernel, we show that subsampling is impotent, in the sense that subsampling has no effect on the asymptotic distribution. Perhaps surprisingly, for the efficient smooth kernels, such as the Parzen kernel, we show that subsampling is harmful as it increases the asymptotic variance. We also study the performance of subsampled realised kernels in simulations and in empirical work.

Keywords: Bipower variation, Long run variance estimator, Market frictions, Quadratic variation, Realised kernel, Realised variance, Subsampling

JEL Classification: C10, C22, C80

Suggested Citation

Barndorff-Nielsen, Ole E. and Hansen, Peter Reinhard and Lunde, Asger and Shephard, Neil, Subsampling Realised Kernels (April 10, 2007). Available at SSRN: https://ssrn.com/abstract=927483 or http://dx.doi.org/10.2139/ssrn.927483

Ole E. Barndorff-Nielsen

University of Aarhus - Thiele Centre, Department of Mathematical Sciences ( email )

Ny Munkegade
Aarhus, DK 8000
Denmark

Peter Reinhard Hansen (Contact Author)

University of Aarhus - CREATES ( email )

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Chapel Hill, NC 27599
United States

HOME PAGE: http://https://sites.google.com/site/peterreinhardhansen/

Asger Lunde

University of Aarhus - School of Economics and Management ( email )

Aarhus
Denmark

CREATES ( email )

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

Neil Shephard

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

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