Econometrica: Jul, 2013, Volume 81, Issue 4

Robust Estimation and Inference for Jumps in Noisy High Frequency Data: A Local‐to‐Continuity Theory for the Pre‐Averaging Method

https://doi.org/10.3982/ECTA10534
p. 1673-1693

Jia Li

We develop an asymptotic theory for the pre‐averaging estimator when asset price jumps are weakly identified, here modeled as local to zero. The theory unifies the conventional asymptotic theory for continuous and discontinuous semimartingales as two polar cases with a continuum of local asymptotics, and explains the breakdown of the conventional procedures under weak identification. We propose simple bias‐corrected estimators for jump power variations, and construct robust confidence sets with valid asymptotic size in a uniform sense. The method is also robust to certain forms of microstructure noise.

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