Journal article
Jeff Fleming, Bradley S. Paye, Jones
2006
2006
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Cite
APA
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Fleming, J., Paye, B. S., & Jones. (2006). The Impact of Microstructure Noise on the Distributional Properties of Daily Stock Returns Standardized by Realized Volatility.
Chicago/Turabian
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Fleming, Jeff, Bradley S. Paye, and Jones. “The Impact of Microstructure Noise on the Distributional Properties of Daily Stock Returns Standardized by Realized Volatility” (2006).
MLA
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Fleming, Jeff, et al. The Impact of Microstructure Noise on the Distributional Properties of Daily Stock Returns Standardized by Realized Volatility. 2006.
BibTeX Click to copy
@article{jeff2006a,
title = {The Impact of Microstructure Noise on the Distributional Properties of Daily Stock Returns Standardized by Realized Volatility},
year = {2006},
author = {Fleming, Jeff and Paye, Bradley S. and Jones}
}
Abstract
Previous studies find that daily stock returns standardized by realized volatility are approximately standard normal. This evidence suggests that jumps are not an empirically relevant feature of stock prices, which is inconsistent with a growing body of research that directly tests for and finds evidence of jumps. This paper resolves the apparent contradiction. We show that upward bias in realized volatility estimates due to microstructure noise can artificially reduce the variance and increase the kurtosis of standardized returns and lead to the false appearance that returns are approximately standard normal. Using a bias-corrected realized volatility estimator, we find that standardized returns exhibit substantial departures from the standard normal and, in fact, are platykurtotic, consistent with a process in which jumps are empirical relevant.
