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Journal of
EMPIRICAL
FINANCE
ELSEVIER Journal of Empirical Finance 4 (1997) 115-158
Intraday periodicity and volatility persistence in
financial markets
Torben G. Andersen a, Tim Bollerslev b,c,.
a Department of Finance, J.L. Kellogg Graduate School of Management, Northwestern Universin,,
Evanston, IL 60208, USA
b Department of Economics, Rouss Hall, University of Virginia, Charlottesville, VA 22901, USA
c NBER, Cambridge, MA 02138, USA
Abstract
The pervasive intraday periodicity in the return volatility in foreign exchange and equity
markets is shown to have a strong impact on the dynamic properties of high frequency
returns. Only by taking account of this strong intraday periodicity is it possible to uncover
the complex intraday volatility dynamics that exists both within and across different
financial markets. The explicit periodic modeling procedure developed here provides such a
framework and thus sets the stage for a formal integration of standard volatility models with
market microstructure variables to allow for a more comprehensive empirical investigation
of the fundamental determinants behind the volatility clustering phenomenon. © 1997
Elsevier Science B.V.
JEL classification." C14; C22; GI4; G15
Keywords: Volatility; Intraday periodicity; Temporal aggregation; ARCH
Journal of
EMPIRICAL
FINANCE
ELSEVIER Journal of Empirical Finance 4 (1997) 115-158
Intraday periodicity and volatility persistence in
financial markets
Torben G. Andersen a, Tim Bollerslev b,c,.
a Department of Finance, J.L. Kellogg Graduate School of Management, Northwestern Universin,,
Evanston, IL 60208, USA
b Department of Economics, Rouss Hall, University of Virginia, Charlottesville, VA 22901, USA
c NBER, Cambridge, MA 02138, USA
Abstract
The pervasive intraday periodicity in the return volatility in foreign exchange and equity
markets is shown to have a strong impact on the dynamic properties of high frequency
returns. Only by taking account of this strong intraday periodicity is it possible to uncover
the complex intraday volatility dynamics that exists both within and across different
financial markets. The explicit periodic modeling procedure developed here provides such a
framework and thus sets the stage for a formal integration of standard volatility models with
market microstructure variables to allow for a more comprehensive empirical investigation
of the fundamental determinants behind the volatility clustering phenomenon. © 1997
Elsevier Science B.V.
JEL classification." C14; C22; GI4; G15
Keywords: Volatility; Intraday periodicity; Temporal aggregation; ARCH