HIGH FREQUENCY MARKET MICROSTRUCTURE NOISE ESTIMATES AND INFERENCE REGARDING RETURNS: A PORTFOLIO SWITCHING APPROACH

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SEIFODDINI JALAL; RAHNAMAY ROODPOSHTI F.; NIKOOMARAM HASHEM

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Journal: FINANCIAL KNOWLEDGE OF SECURITY ANALYSIS (FINANCIAL STUDIES) Year:2017 | Volume:10 | Issue:34 Page(s): 1-12

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Title

HIGH FREQUENCY MARKET MICROSTRUCTURE NOISE ESTIMATES AND INFERENCE REGARDING RETURNS: A PORTFOLIO SWITCHING APPROACH

Author(s)

SEIFODDINI JALAL | RAHNAMAY ROODPOSHTI F. | NIKOOMARAM HASHEM | Issue Writer Certificate

Keywords

MARKET MICROSTRUCTURE NOISEQ2

NOISE TRADERSQ2

HIGH FREQUENCY DATAQ2

PORTFOLIO SWITCHINGQ2

Abstract

Several studies about microstructure noise in capital markets have found that it is a vital aspect of a liquid market. In the absence of NOISE TRADERS trading volume would severely decrease. However, on the other hand, MARKET MICROSTRUCTURE NOISE deviates prices from their fundamental values. In this paper, we separate the microstructure noise from the price process and then we ask whether high frequency estimates of microstructure noise contain a risk factor and whether that risk factor is priced in the market, meaning that stocks that covary with our high-frequency measure of noise tend to get compensated in the form of higher returns. We examine this question through a PORTFOLIO SWITCHING approach by looking at the returns of portfolios sorted on our high frequency measurement of the magnitude of the MARKET MICROSTRUCTURE NOISE. The results show that the portfolio corresponding to the highest quartile noise outperforms the portfolio with the lowest quartile noise.

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APA: Copy

SEIFODDINI, JALAL, RAHNAMAY ROODPOSHTI, F., & NIKOOMARAM, HASHEM. (2017). HIGH FREQUENCY MARKET MICROSTRUCTURE NOISE ESTIMATES AND INFERENCE REGARDING RETURNS: A PORTFOLIO SWITCHING APPROACH. FINANCIAL KNOWLEDGE OF SECURITY ANALYSIS (FINANCIAL STUDIES), 10(34), 1-12. SID. https://sid.ir/paper/200314/en

Vancouver: Copy

SEIFODDINI JALAL, RAHNAMAY ROODPOSHTI F., NIKOOMARAM HASHEM. HIGH FREQUENCY MARKET MICROSTRUCTURE NOISE ESTIMATES AND INFERENCE REGARDING RETURNS: A PORTFOLIO SWITCHING APPROACH. FINANCIAL KNOWLEDGE OF SECURITY ANALYSIS (FINANCIAL STUDIES)[Internet]. 2017;10(34):1-12. Available from: https://sid.ir/paper/200314/en

IEEE: Copy

JALAL SEIFODDINI, F. RAHNAMAY ROODPOSHTI, and HASHEM NIKOOMARAM, “HIGH FREQUENCY MARKET MICROSTRUCTURE NOISE ESTIMATES AND INFERENCE REGARDING RETURNS: A PORTFOLIO SWITCHING APPROACH,” FINANCIAL KNOWLEDGE OF SECURITY ANALYSIS (FINANCIAL STUDIES), vol. 10, no. 34, pp. 1–12, 2017, [Online]. Available: https://sid.ir/paper/200314/en

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