Torben G. Andersen from Northwestern University, Gökhan Cebiroglu and Nikolaus Hautsch, both from the University of Vienna, published a CFS working paper using LOBSTER data, titled Volatility, Information Feedback and Market Microstructure Noise: A Tale of Two Regimes.
Abstract: We extend the classical “martingale-plus-noise” model for high-frequency prices by an error correction mechanism originating from prevailing mispricing. The speed of price reversal is a natural measure for informational efficiency. The strength of the price reversal relative to the signal-to-noise ratio determines the signs of the return serial correlation and the bias in standard realized variance estimates. We derive the model’s properties and locally estimate it based on mid-quote returns of the NASDAQ 100 constituents. There is evidence of mildly persistent local regimes of positive and negative serial correlation, arising from lagged feedback effects and sluggish price adjustments. The model performance is decidedly superior to existing stylized microstructure models. Finally, we document intraday periodicities in the speed of price reversion and noise-to-signal ratios.
Read the working paper version here.