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Estimating quadratic variation consistently in the presence of endogenous and diurnal measurement error

Kalnina, I; Linton, O; (2008) Estimating quadratic variation consistently in the presence of endogenous and diurnal measurement error. Journal of Econometrics , 147 (1) pp. 47-59. 10.1016/j.jeconom.2008.09.016.

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Abstract

We propose an econometric model that captures the effects 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 n- 1 / 6. We investigate in simulation experiments the finite sample performance of various proposed implementations. © 2008 Elsevier B.V. All rights reserved.

Type: Article
Title: Estimating quadratic variation consistently in the presence of endogenous and diurnal measurement error
DOI: 10.1016/j.jeconom.2008.09.016
UCL classification: UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of SandHS > Dept of Economics
URI: http://discovery.ucl.ac.uk/id/eprint/1526924
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