Title: Inference from the futures: Ranking the noise cancelling accuracy of realized measures
Authors: Giorgio Mirone - CREATES & Aarhus University (Denmark) [presenting]
Abstract: The aim is to consider the log-linear relationship between futures contracts and their underlying assets and show that in the classical Brownian semi-martingale (BSM) framework the two series must, by no-arbitrage, have the same integrated variance. We then introduce the concept of noise cancelling and propose a generally applicable methodology to assess the performance of realized measures when the variable of interest is latent,overcoming the problem posed by the lack of a true value for the integrated variance. We use E-mini index futures contracts to carry out formal testing of several realized measures in the presence of noise. Moreover, a thorough simulation analysis is employed to evaluate the estimators' sensitivity to different price and noise processes, and sampling frequencies. These results provide clear and valuable insights on the strengths and weaknesses of the analysed estimators.