High-frequency volatility estimation and the relative importance of market microstructure variables

Li, Yifan and Nolte, Ingmar and Nolte, Sandra (2015) High-frequency volatility estimation and the relative importance of market microstructure variables. Working Paper. UNSPECIFIED.

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Abstract

In this paper we use an autoregressive conditional intensity approach to estimate local high-frequency volatility, and examine to what extent a large universe of market microstructure variables affects local volatility. Our findings support a sequential information arrival hypothesis on the high-frequency level since we show that contemporaneous trading volume is negatively, and lagged trading volume is positively related to local volatility. The use of a penalized likelihood method allows us to obtain a ranking in terms of the relative importance of all market microstructure variables considered. We find that, in a descending order, contemporaneous volume, bid-ask spread, absolute order imbalance, absolute order flow and absolute quote difference carry the most important information for local volatility modelling.

Item Type:
Monograph (Working Paper)
Subjects:
ID Code:
76624
Deposited By:
Deposited On:
11 Nov 2015 15:54
Refereed?:
No
Published?:
Published
Last Modified:
08 May 2020 23:55