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March 2009 High frequency market microstructure noise estimates and liquidity measures
Yacine Aït-Sahalia, Jialin Yu
Ann. Appl. Stat. 3(1): 422-457 (March 2009). DOI: 10.1214/08-AOAS200


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.


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Yacine Aït-Sahalia. Jialin Yu. "High frequency market microstructure noise estimates and liquidity measures." Ann. Appl. Stat. 3 (1) 422 - 457, March 2009.


Published: March 2009
First available in Project Euclid: 16 April 2009

zbMATH: 1160.62089
MathSciNet: MR2668714
Digital Object Identifier: 10.1214/08-AOAS200

Keywords: High frequency data , liquidity , Market microstructure noise , robust volatility estimation , stock returns

Rights: Copyright © 2009 Institute of Mathematical Statistics

Vol.3 • No. 1 • March 2009
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