NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

High Frequency Market Microstructure Noise Estimates and Liquidity Measures

Yacine Ait-Sahalia, Jialin Yu

NBER Working Paper No. 13825
Issued in February 2008
NBER Program(s):   AP

Using recent advances in the econometrics literature, we disentangle from high frequency observations on the transaction prices of a large sample of NYSE stocks a fundamental component and a microstructure noise component. We then relate these statistical measurements of market microstructure noise to observable characteristics of the underlying stocks, and in particular to different financial measures of their liquidity. We find that more liquid stocks based on financial characteristics have lower noise and noise-to-signal ratio measured from their high frequency returns. We then examine whether there exists a common, market-wide, factor in high frequency stock-level measurements of noise, and whether that factor is priced in asset returns.

download in pdf format
   (449 K)

email paper

This paper is available as PDF (449 K) or via email.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w13825

Published: Ait-Sahalia, Yacine and Jialin Yu "High Frequency Market Microstructure Noise Estimates and Liquidity Measures," Annals of Applied Statistics, 2009, 3, 422-457.

Users who downloaded this paper also downloaded these:
Hashimoto, Ito, Ohnishi, Takayasu, Takayasu, and Watanabe w14160 Random Walk or A Run: Market Microstructure Analysis of the Foreign Exchange Rate Movements based on Conditional Probability
Aït-Sahalia, Mykland, and Zhang w11380 Ultra High Frequency Volatility Estimation with Dependent Microstructure Noise
Aït-Sahalia and Jacod w15808 Analyzing the Spectrum of Asset Returns: Jump and Volatility Components in High Frequency Data
Andersen, Bollerslev, and Das w6666 Testing for Market Microstructure Effects in Intraday Volatility: A Reassessment of the Tokyo FX Experiment
Cheung and Chinn w7416 Traders, Market Microstructure and Exchange Rate Dynamics
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us