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Assesing the Economic Significance of the Intra-daily Volatility Seasonalities

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Author Info
Zdravetz Lazarov (School of Economics and Finance, Queensland University of Technology)
Abstract

It is a well established empirical fact that volatility follows approxi- mately an inverted U-shaped pattern during the day. It is high in the morning, gradually decreasing, reaching a minimum at lunch time and then starting to increase again until the end of the trading day. In this paper we investigate the dynamic properties of these intra-daily volatility seasonalities. More specifically, we divide daily volatility into several parts and model them separately. Our analysis shows that morning/afternoon volatility has a different time-series behaviour in comparison to lunch time volatility. Also, a substantial improvement in forecasting performance can be obtained by partitioning daily volatility into parts which correspond to the observed intra-daily seasonalities.

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Paper provided by School of Economics and Finance, Queensland University of Technology in its series School of Economics and Finance Discussion Papers and Working Papers Series with number 203.

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Date of creation: 15 Jun 2005
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Handle: RePEc:qut:dpaper:203

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