Between data cleaning and inference: Pre-averaging and robust estimators of the efficient price

摘要

Pre-averaging is a popular strategy for mitigating microstructure in high frequency financial data. As the term suggests, transaction or quote data are averaged over short time periods ranging from 30 s to five min, and the resulting averages approximate the efficient price process much better than the raw data. Apart from reducing the size of the microstructure, the methodology also helps synchronise data from different securities. The procedure is robust to short term dependence in the noise.