Department of Economics and Business Economics

Validity of Edgeworth expansions for realized volatility estimators

Research output: Working paperResearch

Standard

Validity of Edgeworth expansions for realized volatility estimators. / Hounyo, Ulrich; Veliyev, Bezirgen.

Aarhus : Institut for Økonomi, Aarhus Universitet, 2015.

Research output: Working paperResearch

Harvard

APA

Hounyo, U., & Veliyev, B. (2015). Validity of Edgeworth expansions for realized volatility estimators. Aarhus: Institut for Økonomi, Aarhus Universitet. CREATES Research Papers, No. 2015-21

CBE

Hounyo U, Veliyev B. 2015. Validity of Edgeworth expansions for realized volatility estimators. Aarhus: Institut for Økonomi, Aarhus Universitet.

MLA

Hounyo, Ulrich and Bezirgen Veliyev Validity of Edgeworth expansions for realized volatility estimators. Aarhus: Institut for Økonomi, Aarhus Universitet. (CREATES Research Papers; Journal number 2015-21). 2015., 31 p.

Vancouver

Hounyo U, Veliyev B. Validity of Edgeworth expansions for realized volatility estimators. Aarhus: Institut for Økonomi, Aarhus Universitet. 2015 May 7.

Author

Hounyo, Ulrich ; Veliyev, Bezirgen. / Validity of Edgeworth expansions for realized volatility estimators. Aarhus : Institut for Økonomi, Aarhus Universitet, 2015. (CREATES Research Papers; No. 2015-21).

Bibtex

@techreport{32657560ed444c2ba40bad5b80d8312e,
title = "Validity of Edgeworth expansions for realized volatility estimators",
abstract = "The main contribution of this paper is to establish the formal validity of Edgeworth expansions for realized volatility estimators. First, in the context of no microstructure effects, our results rigorously justify the Edgeworth expansions for realized volatility derived in Gonalves and Meddahi (2009). Second, we show that the validity of the Edgeworth expansions for realized volatility may not cover the optimal two-point distribution wild bootstrap proposed by Gon{\cc}alves and Meddahi (2009). Then, we propose a new optimal nonlattice distribution which ensures the second-order correctness of the bootstrap. Third, in the presence of microstructure noise, based on our Edgeworth expansions, we show that the new optimal choice proposed in the absence of noise is still valid in noisy data for the pre-averaged realized volatility estimator proposed by Podolskij and Vetter (2009). Finally, we show how confidence intervals for integrated volatility can be constructed using these Edgeworth expansions for noisy data. Our Monte Carlo simulations show that the intervals based on the Edgeworth corrections have improved the finite sample properties relatively to the conventional intervals based on the normal approximation.",
keywords = "Realized volatility, pre-averaging, bootstrap, Edgeworth expansions, confidence intervals",
author = "Ulrich Hounyo and Bezirgen Veliyev",
year = "2015",
month = "5",
day = "7",
language = "English",
series = "CREATES Research Papers",
publisher = "Institut for {\O}konomi, Aarhus Universitet",
number = "2015-21",
type = "WorkingPaper",
institution = "Institut for {\O}konomi, Aarhus Universitet",

}

RIS

TY - UNPB

T1 - Validity of Edgeworth expansions for realized volatility estimators

AU - Hounyo, Ulrich

AU - Veliyev, Bezirgen

PY - 2015/5/7

Y1 - 2015/5/7

N2 - The main contribution of this paper is to establish the formal validity of Edgeworth expansions for realized volatility estimators. First, in the context of no microstructure effects, our results rigorously justify the Edgeworth expansions for realized volatility derived in Gonalves and Meddahi (2009). Second, we show that the validity of the Edgeworth expansions for realized volatility may not cover the optimal two-point distribution wild bootstrap proposed by Gonçalves and Meddahi (2009). Then, we propose a new optimal nonlattice distribution which ensures the second-order correctness of the bootstrap. Third, in the presence of microstructure noise, based on our Edgeworth expansions, we show that the new optimal choice proposed in the absence of noise is still valid in noisy data for the pre-averaged realized volatility estimator proposed by Podolskij and Vetter (2009). Finally, we show how confidence intervals for integrated volatility can be constructed using these Edgeworth expansions for noisy data. Our Monte Carlo simulations show that the intervals based on the Edgeworth corrections have improved the finite sample properties relatively to the conventional intervals based on the normal approximation.

AB - The main contribution of this paper is to establish the formal validity of Edgeworth expansions for realized volatility estimators. First, in the context of no microstructure effects, our results rigorously justify the Edgeworth expansions for realized volatility derived in Gonalves and Meddahi (2009). Second, we show that the validity of the Edgeworth expansions for realized volatility may not cover the optimal two-point distribution wild bootstrap proposed by Gonçalves and Meddahi (2009). Then, we propose a new optimal nonlattice distribution which ensures the second-order correctness of the bootstrap. Third, in the presence of microstructure noise, based on our Edgeworth expansions, we show that the new optimal choice proposed in the absence of noise is still valid in noisy data for the pre-averaged realized volatility estimator proposed by Podolskij and Vetter (2009). Finally, we show how confidence intervals for integrated volatility can be constructed using these Edgeworth expansions for noisy data. Our Monte Carlo simulations show that the intervals based on the Edgeworth corrections have improved the finite sample properties relatively to the conventional intervals based on the normal approximation.

KW - Realized volatility, pre-averaging, bootstrap, Edgeworth expansions, confidence intervals

M3 - Working paper

T3 - CREATES Research Papers

BT - Validity of Edgeworth expansions for realized volatility estimators

PB - Institut for Økonomi, Aarhus Universitet

CY - Aarhus

ER -