How should I determine what frequency should I use for doing microstructure research using intraday data? For some reason, there seems to be general consensus of using 5 minute interval, but is there any advantage to this over higher frequencies if e.g. 1 minute data is available?
I think the answer is driven by asking yourself a few questions :
- If you are a practitioner at what frequency are you able to trade and want to trade ? (you are limited by this so no need to go to higher frequencies than that in any case)
- What effect(s) do you want to study ?
- What is a common frequency used by practitioners or academics for the question you have. Maybe which frequency is best becomes the question you want to study. You can form an opinion/intuition ex-ante as well.
- Potentially computing time and resources (tick by tick can grow to a lot of data very quickly)
I have seen people use from a 1 hour aggregation to the tick by tick full book level.
A few examples of academic paper with different aggregations : https://www.scheller.gatech.edu/directory/faculty/lee_s/pubs/Jump2-1-12.pdf (analyst estimates impact on price, done at 30 min intervals)
https://www.researchgate.net/profile/Paresh_Narayan/publication/281200352_Intraday_volatility_interaction_between_the_crude_oil_and_equity_markets/links/55dabe1f08aed6a199aaf80c.pdf (oil price impact done at 5 min intervals)
https://www.researchgate.net/profile/Shaojun_Zhang3/publication/228302398_An_Improved_Estimation_Method_and_Empirical_Properties_of_the_Probability_of_Informed_Trading/links/00b495368bafd7961a000000.pdf (probability of informed trading on a tick by tick level)
If you specify which type of questions you want to answer, others might have more specific suggestions on which interval to use.
I think it all about your choice of data you want to research on, this is because you can always switch to finer intervals if 5 min is not working for you. So high frequency will range between tick, 1 sec, 1 min and 5 min bars. As a researcher you have the autonomy to choose the data set you need given the research objectives that you have.