Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5095434 | Journal of Econometrics | 2017 | 51 Pages |
Abstract
Observed high-frequency prices are always contaminated with liquidity costs or market microstructure noise. Inspired by the market microstructure literature, I explicitly model this noise and remove it from observed prices to obtain an estimate of the frictionless price. I then formally test whether the prices adjusted for the estimated liquidity costs are either totally or partially free from noise. If the liquidity costs are only partially removed, the residual noise is smaller and closer to an exogenous white noise than the original noise is. To illustrate my approach, I use the adjusted prices to improve volatility estimation.
Keywords
Related Topics
Physical Sciences and Engineering
Mathematics
Statistics and Probability
Authors
Selma Chaker,