Subsampling realised kernels

Working paper

In a recent paper we have introduced the class of realised kernel estimators of the increments of quadratic variation in the presence of noise. We showed that this estimator is consistent and derived its limit distribution under various assumptions on the kernel weights. In this paper we extend our analysis, looking at the class of subsampled realised kernels and we derive the limit theory for this class of estimators. We find that subsampling is highly advantageous for estimators based on discontinuous kernels, such as the truncated kernel. For kinked kernels, such as the Bartlett kernel, we show that subsampling is impotent, in the sense that subsampling has no effect on the asymptotic distribution. Perhaps surprisingly, for the efficient smooth kernels, such as the Parzen kernel, we show that subsampling is harmful as it increases the asymptotic variance. We also study the performance of subsampled realised kernels in simulations and in empirical work.

Authors: Shephard, N; Barndorff-Nielsen, O; Lunde, A

• Publication status: Published
• Publisher: University of Oxford
• Series: Department of Economics Discussion Paper Series
• Publication date: 2006-09-01
• Paper number: 278
• Keywords: quadratic variation; realised variance; subsampling; realised Kernal; bipower variation; market frictions; long run variance estimator