TY  - JOUR
AU  - Zhang,Lan
AU  - Mykland,Per A.
AU  - Ait-Sahalia,Yacine
TI  - A Tale of Two Time Scales: Determining Integrated Volatility with Noisy High Frequency Data
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10111
PY  - 2003
Y2  - November 2003
UR  - http://www.nber.org/papers/w10111
L1  - http://www.nber.org/papers/w10111.pdf
N1  - Author contact info:
Lan Zhang
University of Chicago
E-Mail: lzhang@galton.uchicago.edu

Per Mykland
University of Chicago
E-Mail: mykland@pascal.uchicago.edu

Yacine Ait-Sahalia
Department of Economics
Fisher Hall
Princeton University
Princeton, NJ 08544-1021
Tel: 609/258-4015
Fax: 609/258-0719
E-Mail: yacine@princeton.edu
AB  - It is a common practice in finance to estimate volatility from the sum of frequently-sampled squared returns. However market microstructure poses challenges to this estimation approach, as evidenced by recent empirical studies in finance. This work attempts to lay out theoretical grounds that reconcile continuous-time modeling and discrete-time samples. We propose an estimation approach that takes advantage of the rich sources in tick-by-tick data while preserving the continuous-time assumption on the underlying returns. Under our framework, it becomes clear why and where the  usual' volatility estimator fails when the returns are sampled at the highest frequency.
ER  -