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An empirical test of the effect of the return interval on conditional volatility

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  • Timothy Brailsford

Abstract

Autoregressive Conditional Heteroscedasticity (ARCH) effects have been hypothesized to be caused by variations in the rate of information flow. Further, Nelson (1990, 1992) argues that ARCH effects and persistence in conditional variances should vary across sampling frequencies. However, these claims have not been subject to empirical tests on stock market data when the return interval is measured using intraday data. This paper presents such a test. The results support Nelson's claim that mis-specification in the conditional mean has only a small influence on the estimated conditional variance. Thus, mis-specified ARCH class models can be a consistent 'filter' if high frequency data are employed. At the microstructure level, the results are consistent with the view that ARCH effects are generated by variability in the rate of information arrival.

Suggested Citation

  • Timothy Brailsford, 1995. "An empirical test of the effect of the return interval on conditional volatility," Applied Economics Letters, Taylor & Francis Journals, vol. 2(5), pages 156-158.
    • Handle: RePEc:taf:apeclt:v:2:y:1995:i:5:p:156-158
    DOI: 10.1080/135048595357500
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    Cited by:

    1. T. J. Brailsford & K. Maheswaran, 1998. "The Dynamics of the Australian Short†Term Interest Rate," Australian Journal of Management, Australian School of Business, vol. 23(2), pages 213-234, December.
    2. Helena Chuliá & Hipòlit Torró, 2008. "The economic value of volatility transmission between the stock and bond markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 28(11), pages 1066-1094, November.

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