Work

Estimating Quadratic Variation Consistently in the Presence of Correlated Measurement Error

Year: 2006

Type: book

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.

Source: London School of Economics and Political Science Research Online (London School of Economics and Political Science)

Authors: Ilze Kalnina, Oliver B. Linton

Institutions: North Carolina State University, London School of Economics and Political Science, University of Cambridge

Language: English

Topic: Stochastic processes and financial applications

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W1529904546

FWCI: 3.67

Cites: 22

Cited by: 29

Related to: 10