The effect of intraday periodicity on realized volatility measures
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Date
2016
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Abstract
U-shaped intraday periodicity (IP) is a typical stylized fact characterizing intraday returns
on risky assets. In this study we focus on the realized volatility and bipower variation
estimators for daily integrated volatility (IV ) which are based on intraday returns following
a discrete-time model with IP. We demonstrate that neglecting the impact of IP on
realized estimators may lead to non-valid statistical inference concerning IV for the commonly
available number of intraday returns, moreover, the size of daily jump tests may be
distorted. Given the functional form of IP, we derive corrections for the realized measures
of IV . We show in a Monte Carlo and an empirical study that the proposed corrections
improve commonly point and interval estimators of the IV and tests for jumps.
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Keywords
bipower variation, realized volatility, jump detection, daily integrated volatility