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Designing Realized Kernels to Measure the ex post Variation of Equity Prices in the Presence of Noise
Author(s) -
BarndorffNielsen Ole E.,
Hansen Peter Reinhard,
Lunde Asger,
Shephard Neil
Publication year - 2008
Publication title -
econometrica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 16.7
H-Index - 199
eISSN - 1468-0262
pISSN - 0012-9682
DOI - 10.3982/ecta6495
Subject(s) - measure (data warehouse) , equity (law) , economics , econometrics , financial economics , mathematics , statistics , computer science , data mining , political science , law
This paper shows how to use realized kernels to carry out efficient feasible inference on the ex post variation of underlying equity prices in the presence of simple models of market frictions. The weights can be chosen to achieve the best possible rate of convergence and to have an asymptotic variance which equals that of the maximum likelihood estimator in the parametric version of this problem. Realized kernels can also be selected to (i) be analyzed using endogenously spaced data such as that in data bases on transactions, (ii) allow for market frictions which are endogenous, and (iii) allow for temporally dependent noise. The finite sample performance of our estimators is studied using simulation, while empirical work illustrates their use in practice.