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Faculty of Economics

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Merrick Li, Z. and Linton, O.

A ReMeDI for Microstructure Noise

Econometrica

Vol. 90(1) pp. 367-389 (2022)

Abstract: We introduce the Realized moMents of Disjoint Increments (ReMeDI) paradigm to measure microstructure noise (the deviation of the observed asset prices from the fundamental values caused by market imperfections). We propose consistent estimators of arbitrary moments of the microstructure noise process based on highfrequency data, where the noise process could be serially dependent, endogenous, and nonstationary. We characterize the limit distributions of the proposed estimators and construct confidence intervals under infill asymptotics. Our simulation and empirical studies show that the ReMeDI approach is very effective to measure the scale and the serial dependence of microstructure noise. Moreover, the estimators are quite robust to model specifications, sample sizes and data frequencies.

Keywords: Microstructure noise, semimartingale, serial dependence, stable convergence, mixing sequence, infill asymptotics, finite sample bias

Author links: Oliver Linton  

Publisher's Link: https://onlinelibrary.wiley.com/doi/10.3982/ECTA17505

Keynes Fund Project(s):
New Statistical Inference Methods of High-frequency Liquidity and Volatility (JHUL)  



Cambridge Working Paper in Economics Version of Paper: A ReMeDI for Microstructure Noise, Merrick Li, Z. and Linton, O., (2019)

Papers and Publications



Recent Publications


Porzio, T., Rossi, F. and Santangelo, G. The Human Side of Structural Transformation American Economic Review [2022]

Merrick Li, Z. and Linton, O. A ReMeDI for Microstructure Noise Econometrica [2022]

Ritz, R. Does Competition Increase Pass-Through? Rand Journal of Economics, forthcoming [2023]

Rauh, C. and Valladares-Esteban, A. On the Black-White Gaps in Labor Supply and Earnings over the Lifecycle in the US Review of Economic Dynamics [2023]