A Functional Filtering and Neighborhood Truncation Approach to Integrated Quarticity Estimation

Torben G. Andersen, Dobrislav Dobrev, Ernst Schaumburg

NBER Working Paper No. 17152
Issued in June 2011
NBER Program(s):Asset Pricing

We provide a first in-depth look at robust estimation of integrated quarticity (IQ) based on high frequency data. IQ is the key ingredient enabling inference about volatility and the presence of jumps in financial time series and is thus of considerable interest in applications. We document the significant empirical challenges for IQ estimation posed by commonly encountered data imperfections and set forth three complementary approaches for improving IQ based inference. First, we show that many common deviations from the jump diffusive null can be dealt with by a novel filtering scheme that generalizes truncation of individual returns to truncation of arbitrary functionals on return blocks. Second, we propose a new family of efficient robust neighborhood truncation (RNT) estimators for integrated power variation based on order statistics of a set of unbiased local power variation estimators on a block of returns. Third, we find that ratio-based inference, originally proposed by Barndorff-Nielsen and Shephard, has desirable robustness properties and is well suited for our empirical applications. We confirm that the proposed filtering scheme and the RNT estimators perform well in our extensive simulation designs and in an application to the individual Dow Jones 30 stocks.

download in pdf format
   (1756 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w17152

Published: Andersen, Torben, Dobrislav Dobrev and Ernst Schaumburg. 2014. A Robust Neighborhood Truncation Approach to Estimation of Integrated Quarticity. Econometric Theory. 30: 3-59.

Users who downloaded this paper also downloaded* these:
Andersen, Dobrev, and Schaumburg w15533 Jump-Robust Volatility Estimation using Nearest Neighbor Truncation
Aït-Sahalia and Jacod w15808 Analyzing the Spectrum of Asset Returns: Jump and Volatility Components in High Frequency Data
Andersen, Bollerslev, Christoffersen, and Diebold w18084 Financial Risk Measurement for Financial Risk Management
van Soest, Andreyeva, Kapteyn, and Smith w17153 Self Reported Disability and Reference Groups
McMillan and Rodrik w17143 Globalization, Structural Change and Productivity Growth
NBER Videos

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

Contact Us