Kalnina, Ilze and Linton, Oliver (2006) Estimating quadratic variation consistently in the presence of correlated measurement error. EM/2006/509. Suntory and Toyota International Centres for Economics and Related Disciplines, London School of Economics and Political Science, London, UK.
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Abstract
We propose an econometric model that captures the e¤ects of market microstructure on a latent price process. In particular, we allow for correlation between the measurement error and the return process and we allow the measurement error process to have a diurnal heteroskedasticity. We propose a modification of the TSRV estimator of quadratic variation. We show that this estimator is consistent, with a rate of convergence that depends on the size of the measurement error, but is no worse than n1=6. We investigate in simulation experiments the finite sample performance of various proposed implementations.
| Item Type: | Monograph (Discussion Paper) |
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| Official URL: | http://sticerd.lse.ac.uk |
| Additional Information: | © 2006 the authors |
| Uncontrolled Keywords: | Endogenous noise; Market Microstructure; Realised Volatility; Semimartingale |
| Library of Congress subject classification: | H Social Sciences > HB Economic Theory |
| Journal of Economic Literature Classification System: | C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods: General > C12 - Hypothesis Testing |
| Sets: | Research centres and groups > Financial Markets Group (FMG) Collections > Economists Online Departments > Economics Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD) |
| Rights: | http://www.lse.ac.uk/library/rights/LSERO.htm |
| Identification Number: | EM/2006/509 |
| URL: | http://eprints.lse.ac.uk/4413/ |
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