High Frequency Market Microstructure Noise Estimates and Liquidity Measures / Yacine Ait-Sahalia, Jialin Yu.

Format:

Book

Author/Creator:

Ait-Sahalia, Yacine.

Contributor:

National Bureau of Economic Research.

Yu, Jialin.

Series:

Working Paper Series (National Bureau of Economic Research) no. w13825.

NBER working paper series no. w13825

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2008.

Summary:

Using recent advances in the econometrics literature, we disentangle from high frequency observations on the transaction prices of a large sample of NYSE stocks a fundamental component and a microstructure noise component. We then relate these statistical measurements of market microstructure noise to observable characteristics of the underlying stocks, and in particular to different financial measures of their liquidity. We find that more liquid stocks based on financial characteristics have lower noise and noise-to-signal ratio measured from their high frequency returns. We then examine whether there exists a common, market-wide, factor in high frequency stock-level measurements of noise, and whether that factor is priced in asset returns.

Notes:

Print version record

February 2008.