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Heterogeneous Information Arrivals and Return Volatility Dynamics: Uncovering the Long-Run in High Frequency Returns

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  • Andersen, Torben G
  • Bollerslev, Tim

Abstract

Recent empirical evidence suggests that the interdaily volatility clustering for most speculative returns are best characterized by a slowly mean-reverting fractionally integrated process. Meanwhile, much shorter lived volatility dynamics are typically observed with high frequency intradaily returns. The present article demonstrates that, by interpreting the volatility as a mixture of numerous heterogeneous short-run information arrivals, the observed volatility process may exhibit long-run dependence. As such, the long-memory characteristics constitute an intrinsic feature of the return generating process, rather than the manifestation of occasional structural shifts. These ideas are confirmed by the authors' analysis of a one-year time series of five-minute Deutschemark-U.S. dollar exchange rates. Copyright 1997 by American Finance Association.

Suggested Citation

  • Andersen, Torben G & Bollerslev, Tim, 1997. "Heterogeneous Information Arrivals and Return Volatility Dynamics: Uncovering the Long-Run in High Frequency Returns," Journal of Finance, American Finance Association, vol. 52(3), pages 975-1005, July.
    • Handle: RePEc:bla:jfinan:v:52:y:1997:i:3:p:975-1005
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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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