Assesing the Economic Significance of the Intra-daily Volatility Seasonalities
AbstractIt 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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Bibliographic InfoPaper 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.
Date of creation: 15 Jun 2005
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-02-17 (All new papers)
- NEP-FOR-2007-02-17 (Forecasting)
- NEP-MST-2007-02-17 (Market Microstructure)
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