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Modelling intra-daily volatility by functional data analysis: an empirical application to the spanish stock market

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Author Info
Kenedy Alva ()
Juan Romo
Esther Ruiz
Abstract

We propose recent functional data analysis techniques to study the intra-daily volatility. In particular, the volatility extraction is based on functional principal components and the volatility prediction on functional AR(1) models. The estimation of the corresponding parameters is carried out using the functional equivalent to OLS. We apply these ideas to the empirical analysis of the IBEX35 returns observed each _ve minutes. We also analyze the performance of the proposed functional AR(1) model to predict the volatility along a given day given the information in previous days for the intra-daily volatility for the firms in the IBEX35 Madrid stocks index

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Paper provided by Universidad Carlos III, Departamento de Estadística y Econometría in its series Statistics and Econometrics Working Papers with number ws092809.

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Date of creation: Mar 2009
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Handle: RePEc:cte:wsrepe:ws092809

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Keywords: Market microstructure; Ultra-high frequency data; Functional data analysis; Functional AR(1) model;

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  1. Arteche, Josu, 2004. "Gaussian semiparametric estimation in long memory in stochastic volatility and signal plus noise models," Journal of Econometrics, Elsevier, vol. 119(1), pages 131-154, March. [Downloadable!] (restricted)
    Other versions:
  2. Bollerslev, Tim, 2001. "Financial econometrics: Past developments and future challenges," Journal of Econometrics, Elsevier, vol. 100(1), pages 41-51, January. [Downloadable!] (restricted)
  3. Engle, Robert, 2001. "Financial econometrics - A new discipline with new methods," Journal of Econometrics, Elsevier, vol. 100(1), pages 53-56, January. [Downloadable!] (restricted)
  4. Andersen, Torben G. & Bollerslev, Tim, 1997. "Intraday periodicity and volatility persistence in financial markets," Journal of Empirical Finance, Elsevier, vol. 4(2-3), pages 115-158, June. [Downloadable!] (restricted)
  5. Bjørn Eraker & Michael Johannes & Nicholas Polson, 2003. "The Impact of Jumps in Volatility and Returns," Journal of Finance, American Finance Association, vol. 58(3), pages 1269-1300, 06. [Downloadable!] (restricted)
  6. Manganelli, Simone, 2005. "Duration, volume and volatility impact of trades," Journal of Financial Markets, Elsevier, vol. 8(4), pages 377-399, November. [Downloadable!] (restricted)
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  7. Robert F. Engle, 2000. "The Econometrics of Ultra-High Frequency Data," Econometrica, Econometric Society, vol. 68(1), pages 1-22, January.
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  8. Muller, Hans-Georg & Stadtmuller, Ulrich & Yao, Fang, 2006. "Functional Variance Processes," Journal of the American Statistical Association, American Statistical Association, vol. 101, pages 1007-1018, September. [Downloadable!] (restricted)
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