NDLI: Volatility, Information Feedback and Market Microstructure Noise: A Tale of Two Regimes

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Volatility, Information Feedback and Market Microstructure Noise: A Tale of Two Regimes

Content Provider	Scilit
Author	Andersen, Torben G. Cebiroglu, Ggkhan Hautsch, Nikolaus
Copyright Year	2017
Description	Journal: SSRN Electronic Journal We extend the classical “martingale-plus-noise” model for high-frequency prices by an error correction mechanism originating from prevailing mispricing. The speed of price reversal is a natural measure for informational efficiency. The strength of the price reversal relative to the signal-to-noise ratio determines the signs of the return serial correlation and the bias in standard realized variance estimates. We derive the model’s properties and locally estimate it based on mid-quote returns of the NASDAQ 100 constituents. There is evidence of mildly persistent local regimes of positive and negative serial correlation, arising from lagged feedback effects and sluggish price adjustments. The model performance is decidedly superior to existing stylized microstructure models. Finally, we document intraday periodicities in the speed of price reversion and noise-to-signal ratios.
Related Links	http://publikationen.ub.uni-frankfurt.de/files/43007/CFS_WP_569.pdf https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=2921097
ISSN	10914358
e-ISSN	15565068
DOI	10.2139/ssrn.2921097
Journal	SSRN Electronic Journal
Language	English
Publisher	Elsevier BV
Publisher Date	2017-02-06
Access Restriction	Open
Subject Keyword	Journal: SSRN Electronic Journal Volatility Estimation Market Microstructure Noise Price Reversal Momentum Trading Contrarian Trading
Content Type	Text
Resource Type	Article
Subject	Public Health, Environmental and Occupational Health Psychiatry and Mental Health

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