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

Simon Clinet, Yoann Potiron

Research output: Contribution to journalArticle

1 Citation (Scopus)

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.

Original languageEnglish
JournalJournal of Econometrics
DOIs
Publication statusPublished - 2019 Jan 1

Fingerprint

Market microstructure noise
Informational content
Limit order book
Testing
Quasi-maximum likelihood estimation
Quasi-maximum likelihood estimator

Keywords

  • Efficient price
  • Estimation
  • High frequency data
  • Information
  • Integrated volatility
  • Limit order book
  • Market microstructure noise
  • Quasi-maximum likelihood estimator
  • Realized volatility
  • Test

ASJC Scopus subject areas

  • Economics and Econometrics

Cite this

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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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KW - Efficient price

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KW - High frequency data

KW - Information

KW - Integrated volatility

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KW - Quasi-maximum likelihood estimator

KW - Realized volatility

KW - Test

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