TY  - UNPD
A1  - Diebold, Francis X.
A1  - Strasser, Georg H.
T1  - On the correlation structure of microstructure noise in theory and practice
T2  - Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2008,32
N2  - We argue for incorporating the financial economics of market microstructure into the financial econometrics of asset return volatility estimation. In particular, we use market microstructure theory to derive the cross-correlation function between latent returns and market microstructure noise, which feature prominently in the recent volatility literature. The cross-correlation at zero displacement is typically negative, and cross-correlations at nonzero displacements are positive and decay geometrically. If market makers are sufficiently risk averse, however, the cross-correlation pattern is inverted. Our results are useful for assessing the validity of the frequently-assumed independence of latent price and microstructure noise, for explaining observed cross-correlation patterns, for predicting as-yet undiscovered patterns, and for making informed conjectures as to improved volatility estimation methods.
T3  - CFS working paper series - 2008, 32 
KW  - Realized Volatility
KW  - Market Microstructure Theory
KW  - High-Frequency Data
KW  - Financial econometrics
KW  - Marktstruktur
Y1  - 2008
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/5914
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30-58883
ER  -