How often to sample a continuous-time process in the presence of market microstructure noise

Yacine Aït-Sahalia, Per A. Mykland, Lan Zhang

Research output: Contribution to journalArticle

374 Scopus citations

Abstract

In theory, the sum of squares of log returns sampled at high frequency estimates their variance. When market microstructure noise is present but unaccounted for, however, we show that the optimal sampling frequency is finite and derives its closed-form expression. But even with optimal sampling, using say 5-min returns when transactions are recorded every second, a vast amount of data is discarded, in contradiction to basic statistical principles. We demonstrate that modeling the noise and using all the data is a better solution, even if one misspecifies the noise distribution. So the answer is: sample as often as possible.

Original languageEnglish (US)
Pages (from-to)351-416
Number of pages66
JournalReview of Financial Studies
Volume18
Issue number2
DOIs
StatePublished - Jun 1 2005

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

Fingerprint Dive into the research topics of 'How often to sample a continuous-time process in the presence of market microstructure noise'. Together they form a unique fingerprint.

  • Cite this