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on Market Microstructure |
| By: | Sujin Park; Oliver Linton |
| Abstract: | We propose a new estimator of multivariate ex-post volatility that is robust to microstructure noise and asynchronous data timing. The method is based on Fourier domain techniques, which have been widely used in discrete time series analysis. The advantage of this method is that it does not require an explicit time alignment, unlike existing methods in the literature. We derive the large sample properties of our estimator under general assumptions allowing for the number of sample points for different assets to be of different order of magnitude. The by-product of our Fourier domain based estimator is that we have a consistent estimator of the instantaneous co-volatility even under the presence of microstructure noise. We show in extensive simulations that our method outperforms the time domain estimator especially when two assets are traded very asynchronously and with different liquidity and when estimating the high dimensional integrated covariance matrix. |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:fmg:fmgdps:dp703&r=mst |
| By: | Wolfgang Karl Härdle; Nikolaus Hautsch; Andrija Mihoci |
| Abstract: | We propose a local adaptive multiplicative error model (MEM) accommodating timevarying parameters. MEM parameters are adaptively estimated based on a sequential testing procedure. A data-driven optimal length of local windows is selected, yielding adaptive forecasts at each point in time. Analyzing one-minute cumulative trading volumes of five large NASDAQ stocks in 2008, we show that local windows of approximately 3 to 4 hours are reasonable to capture parameter variations while balancing modelling bias and estimation (in)efficiency. In forecasting, the proposed adaptive approach significantly outperforms a MEM where local estimation windows are fixed on an ad hoc basis. |
| Keywords: | multiplicative error model, local adaptive modelling, high-frequency processes, trading volume, forecasting |
| JEL: | C41 C51 C53 G12 G17 |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2012-031&r=mst |
| By: | Evzen Kocenda; Vit Bubak; Filip Zikes |
| Abstract: | This paper studies the dynamics of volatility transmission between Central European (CE) currencies and the EUR/USD foreign exchange using model-free estimates of daily exchange rate volatility based on intraday data. We formulate a flexible yet parsimonious parametric model in which the daily realized volatility of a given exchange rate depends both on its own lags as well as on the lagged realized volatilities of the other exchange rates. We find evidence of statistically significant intra-regional volatility spillovers among the CE foreign exchange markets. With the exception of the Czech and, prior to the recent turbulent economic events, Polish currencies, we find no significant spillovers running from the EUR/USD to the CE foreign exchange markets. To measure the overall magnitude and evolution of volatility transmission over time, we construct a dynamic version of the Diebold-Yilmaz volatility spillover index and show that volatility spillovers tend to increase in periods characterized by market uncertainty. |
| Keywords: | Foreign exchange markets; Volatility; Spillovers; Intraday data; Nonlinear dynamics; European emerging markets |
| JEL: | C5 F31 G15 |
| Date: | 2011–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2011-1020&r=mst |