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Volatility dynamics and heterogeneous markets

Author

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  • David G. McMillan

    (School of Economics, Finance and Business, University of Durham, UK)

  • Alan E. H. Speight

    (Department of Economics, University of Wales, Swansea, UK)

Abstract

Recent research has suggested that intra-day volatility may possess a component structure, resulting either from the arrival of heterogeneous information or the actions of heterogeneous market agents. This paper reports direct evidence for the existence of such components in S&P500 index and DM|$ exchange rate data. Estimation of a FIGARCH model supports the contention that volatility dynamics result from multiple sources. Using a HARCH conditional variance model which defines volatility components over differing time horizons, confirmatory evidence of heterogeneous components is reported, in which context the impact of high-frequency speculation and noise-trading are particularly apparent. Copyright © 2006 John Wiley & Sons, Ltd.

Suggested Citation

  • David G. McMillan & Alan E. H. Speight, 2006. "Volatility dynamics and heterogeneous markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 11(2), pages 115-121.
  • Handle: RePEc:ijf:ijfiec:v:11:y:2006:i:2:p:115-121
    DOI: 10.1002/ijfe.281
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    References listed on IDEAS

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    Cited by:

    1. Dimitrios P. Louzis & Spyros Xanthopoulos-Sisinis & Apostolos P. Refenes, 2012. "Stock index realized volatility forecasting in the presence of heterogeneous leverage effects and long range dependence in the volatility of realized volatility," Applied Economics, Taylor & Francis Journals, vol. 44(27), pages 3533-3550, September.

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