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Title:Bias-Correcting the Realized Range-Based Variance in the Presence of Market Microstructure Noise PDF Logo
Authors:Christensen, Kim
Podolskij, Mark
Vetter, Mathias
Issue Date:2006
Series/Report no.:Technical Report / Universität Dortmund, SFB 475 Komplexitätsreduktion in Multivariaten Datenstrukturen 2006,52
Abstract:Market microstructure noise is a challenge to high-frequency based estimation of the integrated variance, because the noise accumulates with the sampling frequency. In this paper, we analyze the impact of microstructure noise on the realized range-based variance and propose a bias-correction to the rangestatistic. The new estimator is shown to be consistent for the integrated variance and asymptotically mixed Gaussian under simple forms of microstructure noise, and we can select an optimal partition of the high-frequency data in order to minimize its asymptotic conditional variance. The finite sample properties of our estimator are studied with Monte Carlo simulations and we implement it on high-frequency data from TAQ. We find that a bias-corrected range-statistic often has much smaller confidence intervals than the realized variance.
Subjects:Bias-Correction
Integrated Variance
Market Microstructure Noise
Realized Range-Based Variance
Realized Variance
JEL:C10
C80
C22
Document Type:Working Paper
Appears in Collections:Technical Reports, SFB 475: Komplexitätsreduktion in multivariaten Datenstrukturen, TU Dortmund

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