Separating microstructure noise from volatility |
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Authors: | Federico M. Bandi Jeffrey R. Russell |
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Affiliation: | Graduate School of Business, University of Chicago, Chicago, IL 60637, USA |
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Abstract: | There are two variance components embedded in the returns constructed using high frequency asset prices: the time-varying variance of the unobservable efficient returns that would prevail in a frictionless economy and the variance of the equally unobservable microstructure noise. Using sample moments of high frequency return data recorded at different frequencies, we provide a simple and robust technique to identify both variance components. |
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Keywords: | G12 C14 C22 |
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