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A Lagrangian multiplier test for market microstructure noise with applications to sampling interval determination for realized volatilities

Title
A Lagrangian multiplier test for market microstructure noise with applications to sampling interval determination for realized volatilities
Authors
Shin, Dong WanHwang, Eunju
Ewha Authors
신동완
SCOPUS Author ID
신동완scopus
Issue Date
2015
Journal Title
ECONOMICS LETTERS
ISSN
0165-1765JCR Link1873-7374JCR Link
Citation
vol. 129, pp. 95 - 99
Keywords
Lagrangian multiplier testMarket microstructure noiseRealized volatility
Publisher
ELSEVIER SCIENCE SA
Indexed
SSCI; SCOPUS WOS
Abstract
A Lagrangian multiplier test is proposed for testing market microstructure noise (MMN) in financial asset prices. The test is very simple and is asymptotically chi-squared with 1-degree of freedom. The test is applied to sampling interval determination for realized volatilities (RVs) which validates the commonly used "ad hoc rule of between 5 and 30 min" for sampling interval. The proposed test gives a statistical justification for RVs of negligible serial correlation in the log-returns owning to MMN for sampling interval larger than a selected one. A Monte Carlo experiment shows reasonable size and power performance of the test. The proposed test is illustrated for two real data sets. (C) 2015 Elsevier B.V. All rights reserved.
DOI
10.1016/j.econlet.2015.02.013
Appears in Collections:
자연과학대학 > 통계학전공 > Journal papers
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