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Dependent microstructure noise and integrated volatility estimation from high-frequency data
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DOI：10.1016/j.jeconom.2019.10.004.png)
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Abstract
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In this paper, we develop econometric tools to analyze the integrated volatility (IV) of the efficient price and the dynamic properties of microstructure noise in high-frequency data under general dependent noise. We first develop consistent estimators of the variance and autocovariances of noise using a variant of realized volatility. Next, we employ these estimators to adapt the pre-averaging method and derive consistent estimators of the IV, which converge stably to a mixed Gaussian distribution at the optimal rate n1/4. To improve the finite sample performance, we propose a multi-step approach that corrects the finite sample bias, which turns out to be crucial in applications. Our extensive simulation studies demonstrate the excellent performance of our multi-step estimators. In an empirical study, we analyze the dependence structures of microstructure noise and provide intuitive economic interpretations; we also illustrate the importance of accounting for both the serial dependence in noise and the finite sample bias when estimating IV. (C) 2019 Elsevier B.V. All rights reserved.
Keywords:
Dependent microstructure noise
Realized volatility
Bias correction
Integrated volatility
Pre-averaging method
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