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Testing if the market microstructure noise is fully explained by the informational content of some variables from the limit order book

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  • Clinet, Simon
  • Potiron, Yoann

Abstract

In this paper, we build tests for the presence of residual noise in a model where the market microstructure noise is a known parametric function of some variables from the limit order book. The tests compare two distinct quasi-maximum likelihood estimators of volatility, where the related model includes a residual noise in the market microstructure noise or not. The limit theory is investigated in a general nonparametric framework. In the presence of residual noise, we examine the central limit theory of the related quasi-maximum likelihood estimation approach.

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  • Clinet, Simon & Potiron, Yoann, 2019. "Testing if the market microstructure noise is fully explained by the informational content of some variables from the limit order book," Journal of Econometrics, Elsevier, vol. 209(2), pages 289-337.
    • Handle: RePEc:eee:econom:v:209:y:2019:i:2:p:289-337
    DOI: 10.1016/j.jeconom.2019.01.004
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    Cited by:

    1. Li, Yifan & Nolte, Ingmar & Vasios, Michalis & Voev, Valeri & Xu, Qi, 2022. "Weighted Least Squares Realized Covariation Estimation," Journal of Banking & Finance, Elsevier, vol. 137(C).
    2. Long, Yunshen & Yan, Jingzhou & Wu, Liang & Long, Xingchen, 2024. "Market price determination: Interpreting quote order imbalance under zero-profit equilibrium," Economic Modelling, Elsevier, vol. 134(C).
    3. Simon Clinet & Yoann Potiron, 2021. "Estimation for high-frequency data under parametric market microstructure noise," Annals of the Institute of Statistical Mathematics, Springer;The Institute of Statistical Mathematics, vol. 73(4), pages 649-669, August.
    4. Markus Bibinger & Nikolaus Hautsch & Alexander Ristig, 2024. "Jump detection in high-frequency order prices," Papers 2403.00819, arXiv.org.
    5. Li, Z. Merrick & Laeven, Roger J.A. & Vellekoop, Michel H., 2020. "Dependent microstructure noise and integrated volatility estimation from high-frequency data," Journal of Econometrics, Elsevier, vol. 215(2), pages 536-558.
    6. Yinfen Tang & Tao Su & Zhiyuan Zhang, 2022. "Distribution-free specification test for volatility function based on high-frequency data with microstructure noise," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 85(8), pages 977-1022, November.
    7. Cui, Wenhao & Hu, Jie & Wang, Jiandong, 2024. "Nonparametric estimation for high-frequency data incorporating trading information," Journal of Econometrics, Elsevier, vol. 240(1).

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    More about this item

    Keywords

    Efficient price; Estimation; High frequency data; Information; Limit order book; Market microstructure noise; Integrated volatility; Quasi-maximum likelihood estimator; Realized volatility; Test;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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