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Frequency Of Observation And The Estimation Of Integrated Volatility In Deep And Liquid Financial Markets

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Executive Summary

Using two newly available ultrahigh-frequency datasets, one investigates empirically how frequently one can sample certain foreign exchange and U.S. Treasury security returns without contaminating estimates of their integrated volatility with market microstructure noise. Using the standard realized volatility estimator, it's found that one can sample dollar/euro returns as frequently as once every 15 to 20 seconds without contaminating estimates of integrated volatility; 10-year Treasury note returns may be sampled as frequently as once every 2 to 3 minutes on days without U.S. macroeconomic announcements, and as frequently as once every 40 seconds on announcement days.

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