Realized Variance and Market Microstructure Noise

@inproceedings{Hansen2008RealizedVA,
  title={Realized Variance and Market Microstructure Noise},
  author={Peter Reinhard Hansen and Asger Lunde},
  year={2008}
}
We study market microstructure noise in high-frequency data and analyze its implications for the realized variance (RV) under a general specification for the noise. We show that kernel-based estimators can unearth important characteristics of market microstructure noise and that a simple kernel-based estimator dominates the RV for the estimation of integrated variance (IV). An empirical analysis of the Dow Jones Industrial Average stocks reveals that market microstructure noise is time… CONTINUE READING
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