Jump-Robust Volatility Estimation using Nearest Neighbor Truncation

Torben G. Andersen, Dobrislav Dobrev, Ernst Schaumburg

NBER Working Paper No. 15533
Issued in November 2009
NBER Program(s):   AP

We propose two new jump-robust estimators of integrated variance based on high-frequency return observations. These MinRV and MedRV estimators provide an attractive alternative to the prevailing bipower and multipower variation measures. Specifically, the MedRV estimator has better theoretical efficiency properties than the tripower variation measure and displays better finite-sample robustness to both jumps and the occurrence of "zero'' returns in the sample. Unlike the bipower variation measure, the new estimators allow for the development of an asymptotic limit theory in the presence of jumps. Finally, they retain the local nature associated with the low order multipower variation measures. This proves essential for alleviating finite sample biases arising from the pronounced intraday volatility pattern which afflict alternative jump-robust estimators based on longer blocks of returns. An empirical investigation of the Dow Jones 30 stocks and an extensive simulation study corroborate the robustness and efficiency properties of the new estimators.

download in pdf format
   (1015 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w15533

Published: Andersen, Torben G. & Dobrev, Dobrislav & Schaumburg, Ernst, 2012. "Jump-robust volatility estimation using nearest neighbor truncation," Journal of Econometrics, Elsevier, vol. 169(1), pages 75-93. citation courtesy of

Users who downloaded this paper also downloaded these:
Brandt and Diebold w9664 A No-Arbitrage Approach to Range-Based Estimation of Return Covariances and Correlations
Andersen, Bollerslev, and Dobrev w12963 No-Arbitrage Semi-Martingale Restrictions for Continuous-Time Volatility Models subject to Leverage Effects, Jumps and i.i.d. Noise: Theory and Testable Distributional Implications
Aït-Sahalia and Jacod w15808 Analyzing the Spectrum of Asset Returns: Jump and Volatility Components in High Frequency Data
Andersen, Dobrev, and Schaumburg w17152 A Functional Filtering and Neighborhood Truncation Approach to Integrated Quarticity Estimation
Andersen and Bondarenko w13449 Construction and Interpretation of Model-Free Implied Volatility
NBER Videos

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

Contact Us