Correcting intraday periodicity bias in realized volatility measures
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Date
2020
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Abstract
Diurnal fluctuations in volatility are a well-documented stylized fact of intraday price data. We
investigate how this intraday periodicity (IP) affects both finite sample as well as asymptotic
properties of several popular realized estimators of daily integrated volatility which are based on
functionals of M intraday returns. We demonstrate that most of the estimators considered in our
study exhibit a finite-sample bias due to IP, which can however get negligible if the number of
intraday returns diverges to infinity. We suggest appropriate correction factors for this bias based
on estimates of the IP. The adequacy of the new corrections is evaluated by means of a Monte
Carlo simulation study and an empirical example.
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Keywords
integrated volatility, simulation-based methods, intraday periodicity, realized measures