Repository logo
 

A ReMeDI for Microstructure Noise

Accepted version
Peer-reviewed

Type

Article

Change log

Authors

Li, ZM 

Abstract

jats:pWe introduce the Realized moMents of Disjoint Increments (ReMeDI) paradigm to measure microstructure noise (the deviation of the observed asset prices from the fundamental values caused by market imperfections). We propose consistent estimators of arbitrary moments of the microstructure noise process based on high‐frequency data, where the noise process could be serially dependent, endogenous, and nonstationary. We characterize the limit distributions of the proposed estimators and construct confidence intervals under infill asymptotics. Our simulation and empirical studies show that the ReMeDI approach is very effective to measure the scale and the serial dependence of microstructure noise. Moreover, the estimators are quite robust to model specifications, sample sizes, and data frequencies.</jats:p>

Description

Keywords

Microstructure noise, semimartingale, serial dependence, stable convergence, mixing sequence, infill asymptotics, finite sample bias

Journal Title

Econometrica

Conference Name

Journal ISSN

0012-9682
1468-0262

Volume Title

Publisher

The Econometric Society

Rights

All rights reserved