Awartani, Basel, Corradi, Valentina and Distaso, Walter. (2009) Assessing market microstructure effects via realized volatility measures with an application to the Dow Jones industrial average stocks. Journal of Business and Economic Statistics, Vol.27 (No.2). pp. 251-265. ISSN 0735-0015

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Abstract

Transaction prices of financial assets are contaminated by market microstructure effects. This is particularly relevant when estimating volatility using high frequency data. In this article, we assess statistically the effect of microstructure noise on volatility estimators, and test the hypothesis that its variance is independent of the sampling frequency. We provide evidence based on the Dow Jones Industrial Average stocks. We find that noise has a statistically significant effect on volatility estimators at frequencies of 2-3 min or higher. The independently and identically distributed specification with constant variance seems to be a plausible model for microstructure noise, except for ultra high frequencies.

Item Type:	Journal Article
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences Q Science > QA Mathematics
Divisions:	Faculty of Social Sciences > Economics
Journal or Publication Title:	Journal of Business and Economic Statistics
Publisher:	Americal Statistical Association
ISSN:	0735-0015
Date:	April 2009
Volume:	Vol.27
Number:	No.2
Number of Pages:	15
Page Range:	pp. 251-265
Identification Number:	10.1198/jbes.2009.0018
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Restricted or Subscription Access
Funder:	Economic and Social Research Council (Great Britain) (ESRC)
Grant number:	R000230006 (ESRC), RES-062-23-0311 (ESRC)
URI:	http://wrap.warwick.ac.uk/id/eprint/17520

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