We introduce a method for estimating the roughness of a function based on a discrete sample, using the concept of normalized p-th variation along a sequence of partitions. We discuss the consistency of this estimator in a pathwise setting under high-frequency asymptotics. We investigate its finite sample performance for measuring the roughness of sample paths of stochastic processes using detailed numerical experiments based on sample paths of Fractional Brownian motion and other fractional processes.
We then apply this method to estimate the roughness of realized volatility signals based on high-frequency observations.
Through a detailed numerical experiment based on a stochastic volatility model, we show that even when instantaneous volatility has diffusive dynamics with the same roughness as Brownian motion, the realized volatility exhibits rougher behaviour corresponding to a Hurst exponent significantly smaller than 0.5. Similar behaviour is observed in financial data, which suggests that the origin of the roughness observed in realized volatility time-series lies in the `microstructure noise' rather than the volatility process itself.