Comparing robustness of realised measures under round-off errors, price adjustments and serial correlations: a simulation study

Abstract

We compare the accuracy of realised measures using a number of computer simulations. Realised measures are the methods used to estimate the integrated volatility from high-frequency data. We consider a simple realised volatility (RV), a five-minute RV, a subsampled five-minute RV, a two-scale (TS) estimator, a realised kernel (RK), a pre-averaging (PA) estimator and a separating information maximum likelihood (SIML) estimator. We use seven market microstructure models, which includes round-off errors, price adjustments and serial correlation. The SIML is not irrationally biased in any case; this implies that the SIML is sufficiently robust to the market microstructure noise in any form. We have also found that the SIML is the only realised measure for maintaining consistency in all our simulations. We conclude that SIML is suitable for practical applications.