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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