Template-Type: ReDIF-Paper 1.0
Author-Name: Martens, M.P.E.
Author-Name-Last: Martens
Author-Name-First: Martin
Author-Name: van Dijk, D.J.C.
Author-Name-Last: van Dijk
Author-Name-First: Dick
Author-Person: pva27
Title: Measuring volatility with the realized range
Abstract: Realized variance, being the summation of squared intra-day returns, has quickly gained popularity as a measure of daily volatility. Following Parkinson (1980) we replace each squared intra-day return by the high-low range for that period to create a novel and more efficient estimator called the realized range. In addition we suggest a bias-correction procedure to account for the effects of microstructure frictions based upon scaling the realized range with the average level of the daily range. Simulation experiments demonstrate that for plausible levels of non-trading and bid-ask bounce the realized range has a lower mean squared error than the realized variance, including variants thereof that are robust to microstructure noise. Empirical analysis of the S&P500 index-futures and the S&P100 constituents confirm the potential of the realized range.
Creation-Date: 2006-02-28
File-URL: https://repub.eur.nl/pub/7582/ei2006-10.pdf
File-Format: application/pdf
Series: RePEc:ems:eureir
Number: EI 2006-10
Classification-JEL: C14, C15, C53
Keywords: bias-correction, high-frequency data, high-low range, market microstructure noise, realized volatility
Handle: RePEc:ems:eureir:7582