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Title: Realized moments: Identification and pricing Authors:  Roberto Reno - University of Verona (Italy) [presenting]
Davide Pirino - University of Rome Tor Vergata (Italy)
Federico Bandi - Johns Hopkins University (United States)
Aleksey Kolokolov - Alliance Manchester Business School (United Kingdom)
Abstract: The purpose is to study the properties of realized high-order moments under a data generating process accounting for key stylized features: infrequent discontinuities in unobserved equilibrium prices and staleness in observed prices, a phenomenon linked to volume dynamics. The focus is on identification and pricing. In terms of identification, we show how the interplay between price discontinuities and prices staleness will, in general, lead to biased and/or noisy high- order moment estimates. We also show how a combination of thresholding and corrections for staleness-induced biases can be deployed to extract reliable information about high-order continuous and discontinuous variation. Regarding pricing, the use of thresholding and debiasing leads to ample evidence about the negative cross-sectional pricing of idiosyncratic price discontinuities at high frequency. We show that accounting for staleness is (1) important for the correct identification of high-order moments, (2) revealing about these moments cross-sectional pricing and (3) informative about the pricing of illiquidity, for which staleness is a rich proxy.