Edgeworth Expansions for Realized Volatility and Related Estimators

Lan Zhang, Per A. Mykland, Yacine Ait-Sahalia

NBER Technical Working Paper No. 319
Issued in October 2005
NBER Program(s):   TWP

This paper shows that the asymptotic normal approximation is often insufficiently accurate for volatility estimators based on high frequency data. To remedy this, we compute Edgeworth expansions for such estimators. Unlike the usual expansions, we have found that in order to obtain meaningful terms, one needs to let the size of the noise to go zero asymptotically. The results have application to Cornish-Fisher inversion and bootstrapping.

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