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Volatility dynamics and heterogeneous markets

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  • David G. McMillan

    (School of Economics, Finance and Business, University of Durham, UK)

  • Alan E. H. Speight

    (Department of Economics, University of Wales, Swansea, UK)

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    Abstract

    Recent research has suggested that intra-day volatility may possess a component structure, resulting either from the arrival of heterogeneous information or the actions of heterogeneous market agents. This paper reports direct evidence for the existence of such components in S&P500 index and DM|$ exchange rate data. Estimation of a FIGARCH model supports the contention that volatility dynamics result from multiple sources. Using a HARCH conditional variance model which defines volatility components over differing time horizons, confirmatory evidence of heterogeneous components is reported, in which context the impact of high-frequency speculation and noise-trading are particularly apparent. Copyright © 2006 John Wiley & Sons, Ltd.

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    File URL: http://hdl.handle.net/10.1002/ijfe.281
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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

    Volume (Year): 11 (2006)
    Issue (Month): 2 ()
    Pages: 115-121

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    Handle: RePEc:ijf:ijfiec:v:11:y:2006:i:2:p:115-121

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    1. Richard K. Lyons., 1993. "Tests of Microstructural Hypotheses in the Foreign Exchange Market," Research Program in Finance Working Papers RPF-230, University of California at Berkeley.
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