Bootstrapping Pre-Averaged Realized Volatility under Market Microstructure Noise

Goncalves, Silvia, Hounyo, Ulrich and Meddahi, Nour (2017) Bootstrapping Pre-Averaged Realized Volatility under Market Microstructure Noise. TSE Working Paper, n. 17-809, Toulouse

WarningThere is a more recent version of this item available.
[img]
Preview
Text
Download (657kB) | Preview
Official URL: http://tse-fr.eu/pub/31733

Abstract

The main contribution of this paper is to propose a bootstrap method for inference on integrated volatility based on the pre-averaging approach, where the pre-averaging is done over all possible overlapping blocks of consecutive observations. The overlapping nature of the pre-averaged returns implies that the leading martingale part in the pre-averaged returns are kn-dependent with kn growing slowly with the sample size n. This motivates the application of a blockwise bootstrap method. We show that the \blocks of blocks" bootstrap method is not valid when volatility is time-varying. The failure of the blocks of blocks bootstrap is due to the heterogeneity of the squared pre-averaged returns when volatility is stochastic. To preserve both the dependence and the heterogeneity of squared pre-averaged returns, we propose a novel procedure that combines the wild bootstrap with the blocks of blocks bootstrap. We provide a proof of the first order asymptotic validity of this method for percentile and percentile-t intervals. Our Monte Carlo simulations show that the wild blocks of blocks bootstrap improves the finite sample properties of the existing first order asymptotic theory. We use empirical work to illustrate its use in practice.

Item Type: Monograph (Working Paper)
Language: English
Date: May 2017
Place of Publication: Toulouse
Uncontrolled Keywords: Block bootstrap, high frequency data, market microstructure noise, preaveraging, realized volatility, wild bootstrap
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 18 May 2017 14:02
Last Modified: 07 Mar 2018 13:24
OAI ID: oai:tse-fr.eu:31733
URI: http://publications.ut-capitole.fr/id/eprint/24088

Available Versions of this Item

Actions (login required)

View Item View Item

Downloads

Downloads per month over past year