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Heterogeneous Information Arrivals and Return Volatility Dynamics: Uncovering the Long-Run in High Frequency Returns

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  • Andersen, Torben G
  • Bollerslev, Tim

Abstract

Recent empirical evidence suggests that the interdaily volatility clustering for most speculative returns are best characterized by a slowly mean-reverting fractionally integrated process. Meanwhile, much shorter lived volatility dynamics are typically observed with high frequency intradaily returns. The present article demonstrates that, by interpreting the volatility as a mixture of numerous heterogeneous short-run information arrivals, the observed volatility process may exhibit long-run dependence. As such, the long-memory characteristics constitute an intrinsic feature of the return generating process, rather than the manifestation of occasional structural shifts. These ideas are confirmed by the authors' analysis of a one-year time series of five-minute Deutschemark-U.S. dollar exchange rates. Copyright 1997 by American Finance Association.

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Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 52 (1997)
Issue (Month): 3 (July)
Pages: 975-1005

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Handle: RePEc:bla:jfinan:v:52:y:1997:i:3:p:975-1005

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