TY  - JOUR
AU  - Ait-Sahalia,Yacine
AU  - Yu,Jialin
TI  - High Frequency Market Microstructure Noise Estimates and Liquidity Measures
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13825
PY  - 2008
Y2  - February 2008
UR  - http://www.nber.org/papers/w13825
L1  - http://www.nber.org/papers/w13825.pdf
N1  - Author contact info:
Yacine Ait-Sahalia
Department of Economics
Fisher Hall
Princeton University
Princeton, NJ 08544-1021
Tel: 609/258-4015
Fax: 609/258-0719
E-Mail: yacine@princeton.edu

Jialin Yu
421 Uris Hall
Graduate School of Business
Columbia University
3022 Broadway
New York, NY 10027
Tel: 212/854-9140
Fax: 212/316-9180
E-Mail: jy2167@columbia.edu
AB  - Using recent advances in the econometrics literature, we disentangle from high frequency observations on the transaction prices of a large sample of NYSE stocks a fundamental component and a microstructure noise component. We then relate these statistical measurements of market microstructure noise to observable characteristics of the underlying stocks, and in particular to different financial measures of their liquidity. We find that more liquid stocks based on financial characteristics have lower noise and noise-to-signal ratio measured from their high frequency returns. We then examine whether there exists a common, market-wide, factor in high frequency stock-level measurements of noise, and whether that factor is priced in asset returns.
ER  -