Frequency of observation and the estimation of integrated volatility in deep and liquid financial markets
By: by Alain Chaboud ... [et al.].
Contributors: Chaboud, Alain P.; Bank for International Settlements. Monetary and Economic Dept.
Series: BIS working papers -- no. 249
Publisher: Bank for International Settlements
Published: 2008
Place of publication: Basel, Switzerland
Language: eng
Format: Electronic resource
Description: Using two newly available ultrahigh-frequency datasets, we investigate empirically how frequently one can sample certain foreign exchange and U.S. Treasury security returns without contaminating estimates of their integrated volatility with market microstructure noise. We find that one can sample FX returns as frequently as once every 15 to 20 seconds without contaminating volatility estimates; bond returns may be sampled as frequently as once every 2 to 3 minutes on days without U.S. macroeconomic announcements, and as frequently as once every 40 seconds on announcement days. With a simple realized kernel estimator, the sampling frequencies can be increased to once every 2 to 5 seconds for FX returns and to about once every 30 to 40 seconds for bond returns. These sampling frequencies, especially in the case of FX returns, are much higher than those often recommended in the empirical literature on realized volatility in equity markets. The higher sampling frequencies for FX and bond returns likely reflects the superior depth and liquidity of these markets.
Notes: Title from PDF file (viewed on Oct. 10, 2008).

"February 2008."

"Monetary and Economic Department."

Includes bibliographical references.

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