Microstructure Noise in the Continuous Case: The Pre-Averaging Approach - JLMPV-9

Abstract

This paper presents a generalized pre-averaging approach for estimating the integrated volatility. This approach also provides consistent estimators of other powers of volatility - in particular, it gives feasible ways to consistently estimate the asymptotic variance of the estimator of the integrated volatility. We show that our approach, which possess an intuitive transparency, can generate rate optimal estimators (with convergence rate n-1/4).

Keywords: consistency, continuity, discrete observation, Itý process, leverage effect, pre-averaging, quarticity, realized volatility, stable convergence

JEL Classification: C10, C13, C14