Efficient Asymptotic Variance Reduction When Estimating Volatility in High Frequency Data

• Activity Number: 663 - New Developments in Modern Statistical Estimation Theory
• Type: Contributed
• Date/Time: Thursday, August 3, 2017 : 10:30 AM to 12:20 PM
• Sponsor: IMS
• Author(s): Yoann Potiron* and Simon Clinet
• Companies: Keio University Faculty of Business and Commerce and The University of Tokyo
• Keywords: high frequency data ; market microstructure noise ; integrated volatility ; quasi-maximum likelihood estimator ; realized kernels

Abstract

This paper shows how to carry out efficient asymptotic variance reduction when estimating volatility in the presence of stochastic volatility and microstructure noise with the realized kernels (RK) from Barndorff et al. (2008) and the quasi-maximum likelihood estimator (QMLE) studied in Xiu (2010). To obtain such a reduction, we chop the data into $B$ blocks, compute the RK (or QMLE) on each block, and aggregate the block estimates. The ratio of asymptotic variance over the bound of asymptotic efficiency converges as $B$ increases to the ratio in the parametric version of the problem, i.e. 1.0025 in the case of the fastest RK Tukey-Hanning 16 and 1 for the QMLE. The finite sample performance of both estimators is investigated in simulations, while empirical work illustrates the gain in practice.