Modelling the Intraday Return Volatility Process In The Australian Equity Market: An Examination Of The Role Of Information Arrival In S&P/Asx 50 Stocks
This paper examines the intraday return volatility process in Australian company stocks. The data set employed consists of five-minute returns, trading volumes and bid-ask spreads over the period 31 December 2002 to 4 March 2003 for the fifty national and multinational stocks comprising the S&P/ASX 50 index. GARCH is used to model the time-varying variance in the intraday return series and the inclusion of news arrival as proxied by the contemporaneous and lagged volume of trade and bid-ask spread is used as an exogenous explanatory variable. The results indicate strong persistence in volatility for the fifty stocks even with the contemporaneous and lagged volume of trade and bid-ask spread included as explanatory variables in the models. Overall, while there is much variation among the stocks included in terms of the role of the irregular arrival of new information in generating GARCH effects and the degree of persistence, all of the volatility processes are mean reverting.
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