Adaptive Realized Kernels

Journal of Financial Econometrics, Vol. 0, No. 0, 1-41, 2014

40 Pages Posted: 23 Aug 2009 Last revised: 13 Apr 2016

See all articles by Marine Carrasco

Marine Carrasco

University of Montreal - Departement de Ciences Economiques

Rachidi Kotchoni

Université Paris Nanterre; African Development Bank

Date Written: May 5, 2014

Abstract

We design adaptive realized kernels to estimate the integrated volatility in a framework that combines a stochastic volatility model with leverage effect for the efficient price and a semiparametric microstructure noise model specified at the highest frequency. Some time dependence parameters of the noise model must be estimated before adaptive realized kernels can be implemented. We study their performance by simulation and illustrate their use with twelve stocks listed in the Dow Jones Industrial. As expected, we find that adaptive realized kernels achieves the optimal trade-off between the discretization error and the microstructure noise.

Keywords: Integrated Volatility, Method of Moment, Microstructure Noise, Realized Kernel, Shrinkage

JEL Classification: C13, C14, G10

Suggested Citation

Carrasco, Marine and Kotchoni, Rachidi, Adaptive Realized Kernels (May 5, 2014). Journal of Financial Econometrics, Vol. 0, No. 0, 1-41, 2014, Available at SSRN: https://ssrn.com/abstract=1459714

Marine Carrasco

University of Montreal - Departement de Ciences Economiques ( email )

C.P. 6128, succursale Centre-Ville
Montreal, Quebec H3C 3J7
Canada
(514) 343-2394 (Phone)

HOME PAGE: http://www.sceco.umontreal.ca/liste_personnel/carrasco/index.htm

Rachidi Kotchoni (Contact Author)

Université Paris Nanterre ( email )

200 Avenue de la République
Nanterre, Hauts de Seine 92000
France

African Development Bank ( email )

Rue Joseph Anoma
Abidjan, Ivory Coast 01 BP 1387
Ivory Coast (Cote D'ivoire)

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