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Sampling Returns for Realized Variance Calculations: Tick Time or Transaction Time?

Griffin, Jim E., Oomen, Roel C. A. (2008) Sampling Returns for Realized Variance Calculations: Tick Time or Transaction Time? Econometric Reviews, 27 (1-3). pp. 230-253. ISSN 0747-4938. (doi:10.1080/07474930701873341) (The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided) (KAR id:3152)

The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided.
Official URL:
http://dx.doi.org/10.1080/07474930701873341

Abstract

This article introduces a new model for transaction prices in the presence of market microstructure noise in order to study the properties of the price process on two different time scales, namely, transaction time where prices are sampled with every transaction and tick time where prices are sampled with every price change. Both sampling schemes have been used in the literature on realized variance, but a formal investigation into their properties has been lacking. Our empirical and theoretical results indicate that the return dynamics in transaction time are very different from those in tick time and the choice of sampling scheme can therefore have an important impact on the properties of realized variance. For RV we find that tick time sampling is superior to transaction time sampling in terms of mean-squared-error, especially when the level of noise, number of ticks, or the arrival frequency of efficient price moves is low. Importantly, we show that while the microstructure noise may appear close to IID in transaction time, in tick time it is highly dependent. As a result, bias correction procedures that rely on the noise being independent, can fail in tick time and are better implemented in transaction time.

Item Type: Article
DOI/Identification number: 10.1080/07474930701873341
Uncontrolled keywords: market microstructure noise; optimal sampling; pure jump process; realized variance; tick time; transaction time
Subjects: Q Science > QA Mathematics (inc Computing science) > QA276 Mathematical statistics
Divisions: Divisions > Division of Computing, Engineering and Mathematical Sciences > School of Mathematics, Statistics and Actuarial Science
Depositing User: Jim Griffin
Date Deposited: 03 Jun 2008 14:11 UTC
Last Modified: 16 Nov 2021 09:41 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/3152 (The current URI for this page, for reference purposes)

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