Which Daily Price Is Less Noisy?
The daily efficient price is the price that would prevail if the market were frictionless. I show that volume-weighted average price (VWAP) provides a less noisy estimate for the unobservable efficient price as compared to the closing price. The variance of daily returns computed with VWAPs is small...
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sg-smu-ink.lkcsb_research-28792017-04-19T09:30:44Z Which Daily Price Is Less Noisy? TING, Christopher The daily efficient price is the price that would prevail if the market were frictionless. I show that volume-weighted average price (VWAP) provides a less noisy estimate for the unobservable efficient price as compared to the closing price. The variance of daily returns computed with VWAPs is smaller than that computed with closing prices. The difference between these two realized variances is economically significant. The volatility of log closing price change tends to understate the beta risk and Sharpe ratio. A higher noise level in the closing price leads to derivative prices that favor option and volatility-related swap writers. 2006-09-01T07:00:00Z text application/pdf https://ink.library.smu.edu.sg/lkcsb_research/1880 info:doi/10.1111/j.1755-053X.2006.tb00148.x https://ink.library.smu.edu.sg/context/lkcsb_research/article/2879/viewcontent/Ting_2006_Financial_Management_DailyPriceNoisy.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection Lee Kong Chian School Of Business eng Institutional Knowledge at Singapore Management University Finance and Financial Management Portfolio and Security Analysis |
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Finance and Financial Management Portfolio and Security Analysis TING, Christopher Which Daily Price Is Less Noisy? |
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The daily efficient price is the price that would prevail if the market were frictionless. I show that volume-weighted average price (VWAP) provides a less noisy estimate for the unobservable efficient price as compared to the closing price. The variance of daily returns computed with VWAPs is smaller than that computed with closing prices. The difference between these two realized variances is economically significant. The volatility of log closing price change tends to understate the beta risk and Sharpe ratio. A higher noise level in the closing price leads to derivative prices that favor option and volatility-related swap writers. |
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TING, Christopher |
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TING, Christopher |
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TING, Christopher |
title |
Which Daily Price Is Less Noisy? |
title_short |
Which Daily Price Is Less Noisy? |
title_full |
Which Daily Price Is Less Noisy? |
title_fullStr |
Which Daily Price Is Less Noisy? |
title_full_unstemmed |
Which Daily Price Is Less Noisy? |
title_sort |
which daily price is less noisy? |
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Institutional Knowledge at Singapore Management University |
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2006 |
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https://ink.library.smu.edu.sg/lkcsb_research/1880 https://ink.library.smu.edu.sg/context/lkcsb_research/article/2879/viewcontent/Ting_2006_Financial_Management_DailyPriceNoisy.pdf |
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