Seminar on Probability and Statistics

Seminar information archive ~07/13Next seminarFuture seminars 07/14~

Organizer(s) Nakahiro Yoshida, Hiroki Masuda, Teppei Ogihara, Yuta Koike


13:00-14:10   Room #052 (Graduate School of Math. Sci. Bldg.)
Selma Chaker (Bank of Canada)
On High Frequency Estimation of the Frictionless Price: The Use of Observed Liquidity Variables (ENGLISH)
[ Abstract ]
Observed high-frequency prices are always contaminated with liquidity costs or market microstructure noise. Inspired by the market microstructure literature, I explicitly model this noise and remove it from observed prices to obtain an estimate of the frictionless price. I then formally test whether the prices adjusted for the estimated liquidity costs are either totally or partially free from noise. If the liquidity costs are only partially removed, the residual noise is smaller and closer to an exogenous white noise than the original noise is. To illustrate my approach, I use the adjusted prices to improve volatility estimation in the presence of noise. If the noise is totally absorbed, I show that the sum of squared returns - which would be inconsistent for return variance when based on observed returns - becomes consistent when based on adjusted returns.
[ Reference URL ]