TY - JOUR
T1 - The economics of data
T2 - Using simple model-free volatility in a high-frequency world
AU - Garvey, John
AU - Gallagher, Liam A.
PY - 2013/12
Y1 - 2013/12
N2 - This paper examines the practical implications of using high-frequency data in a fast and frugal manner. It recognises the continued widespread application of model free approaches within many trading and risk management functions. Our analysis of the relative characteristics of four model-free volatility estimates is framed around their relative long memory effects as measured by the feasible exact local Whittle estimator. For a cross-section of sixteen FTSE-100 stocks, for the period 1997-2007, we show that 5-min realized volatility exhibits a higher level of volatility persistence than approaches that use data in a sparse way (close-to-close volatility, high-low volatility and Yang & Zhang volatility). This observation is a useful decision-tool for a trading and risk management decisions that are undertaken in a time-constrained task environment. It recommends that the use of sparse data (open, high, low and closing price observations) requires trader intuition and judgement to build long-memory effects into their pricing.
AB - This paper examines the practical implications of using high-frequency data in a fast and frugal manner. It recognises the continued widespread application of model free approaches within many trading and risk management functions. Our analysis of the relative characteristics of four model-free volatility estimates is framed around their relative long memory effects as measured by the feasible exact local Whittle estimator. For a cross-section of sixteen FTSE-100 stocks, for the period 1997-2007, we show that 5-min realized volatility exhibits a higher level of volatility persistence than approaches that use data in a sparse way (close-to-close volatility, high-low volatility and Yang & Zhang volatility). This observation is a useful decision-tool for a trading and risk management decisions that are undertaken in a time-constrained task environment. It recommends that the use of sparse data (open, high, low and closing price observations) requires trader intuition and judgement to build long-memory effects into their pricing.
KW - Economics of information
KW - High frequency data
KW - Long memory effects
KW - Model free volatility
UR - http://www.scopus.com/inward/record.url?scp=84888437791&partnerID=8YFLogxK
U2 - 10.1016/j.najef.2013.02.011
DO - 10.1016/j.najef.2013.02.011
M3 - Article
AN - SCOPUS:84888437791
SN - 1062-9408
VL - 26
SP - 370
EP - 379
JO - North American Journal of Economics and Finance
JF - North American Journal of Economics and Finance
ER -