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Temporal aggregation, volatility components and volume in high frequency UK bond futures

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Author Info
David G. McMillan
Alan E.H. Speight
Abstract

This paper examines volatility in UK Long Gilt and Short Sterling futures over several intra-day frequencies. Initial GARCH model estimates are found to exhibit remaining residual structure and to be inconsistent with theoretical temporal aggregation results for all frequencies other than the full day. Further estimates suggest that intra-day volatility is more adequately characterized by a component model which decomposes volatility into short-run effects which dominate intra-day periods and long-run effects which dominate inter-day horizons, and that such components are associated with the arrival of information flows as proxied by volume. This component volatility model is also able to account for all dependence in Long Gilt futures at frequencies of 15 minutes and lower, and in Short Sterling futures at 1 hour and lower.

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Publisher Info
Article provided by Taylor and Francis Journals in its journal The European Journal of Finance.

Volume (Year): 8 (2002)
Issue (Month): 1 (March)
Pages: 70-92
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Handle: RePEc:taf:eurjfi:v:8:y:2002:i:1:p:70-92

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Related research
Keywords: Conditional Variance; Component Model; Intra; Temporal Aggregation; Futures Markets;

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