Synopses & Reviews
Synopsis
Excerpt from Nontrading, Market-Making, and Estimates of Stock Price Volatility
Unfortunately, as we show, removal of the bias will often decrease, not increase, estimation efficiency. On the other hand, information-motivated trades with market makers tend to generate prices which will lead to a downward bias in traditional volatility estimates. In addition to causing these biases, we show that the impact of information trading and liquidity trading on observed prices exacerbates the loss of efficiency in traditional volatility estimators which is attributable to nontrading pg; gs.
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