Spot Variance Path Estimation and Its Application to High-Frequency Jump Testing
2012
This paper considers spot variance path estimation from datasets of intraday high-frequency asset prices in the presence of diurnal variance patterns,
jumps, leverage effects, and microstructure noise. We rely on parametric and nonparametric methods. The estimated spot variance path can be used to extend an existing high-frequency
jumptest statistic, to detect arrival times of
jumps, and to obtain distributional characteristics of detected
jumps. The effectiveness of our approach is explored through Monte Carlo simulations. It is shown that sparse sampling for mitigating the impact of microstructure noise has an adverse effect on both spot variance estimation and
jumpdetection. In our approach, we can analyze high-frequency price observations that are contaminated with microstructure noise and rounding effects without the need for sparse sampling. An empirical illustration is presented for the intraday EUR/USD exchange rates. Our main finding is that fewer
jumpsare detected when sampling intervals increase. Copyright The Author 2012. Published by Oxford University Press. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.
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