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Correcting Intraday Periodicity Bias in Realized Volatility Measures

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  • Dette, Holger
  • Golosnoy, Vasyl
  • Kellermann, Janosch

Abstract

Diurnal fluctuations in volatility are a well-documented stylized fact of intraday price data. This warrants an investigation 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 a finite number of intraday returns. It turns out that most of the estimators considered in this study exhibit a finite-sample bias due to IP, which can however get negligible when the number of intraday returns diverges to infinity. The appropriate correction factors for this bias are derived 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.

Suggested Citation

  • Dette, Holger & Golosnoy, Vasyl & Kellermann, Janosch, 2022. "Correcting Intraday Periodicity Bias in Realized Volatility Measures," Econometrics and Statistics, Elsevier, vol. 23(C), pages 36-52.
    • Handle: RePEc:eee:ecosta:v:23:y:2022:i:c:p:36-52
    DOI: 10.1016/j.ecosta.2021.03.002
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    Cited by:

    1. Holger Dette & Vasyl Golosnoy & Janosch Kellermann, 2023. "The effect of intraday periodicity on realized volatility measures," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 86(3), pages 315-342, April.
    2. Gao, Shang & Zhang, Zhikai & Wang, Yudong & Zhang, Yaojie, 2023. "Forecasting stock market volatility: The sum of the parts is more than the whole," Finance Research Letters, Elsevier, vol. 55(PA).

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    More about this item

    Keywords

    Integrated volatility; Realized measures; Intraday periodicity; Simulation-based methods;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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