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Intra‐day volatility components in FTSE‐100 stock index futures
Author(s) -
Speight Alan E.H.,
McMillan David G.,
ap Gwilym Owain
Publication year - 2000
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/(sici)1096-9934(200005)20:5<425::aid-fut2>3.0.co;2-0
Subject(s) - futures contract , volatility (finance) , econometrics , economics , realized variance , forward volatility , stock (firearms) , stock index futures , stock market index , financial economics , volatility smile , mathematics , stock market , geography , context (archaeology) , archaeology
Recent research has suggested that intra‐day volatility may contain both short‐run and long‐run components due to the existence of heterogeneous information flows or heterogeneous market agents (Andersen & Bollerslev, 1997a, 1997b; Müller et al., 1997). We report direct evidence for the existence of such a volatility decomposition in intra‐day UK FTSE‐100 futures returns data at frequencies of one hour and higher using the permanent–transitory component variance model of Engle and Lee (1993). Moreover, the transitory component identified exhibits rapid decay, volatility at the half‐day frequency being completely dominated by the highly persistent permanent component. The model also is able to capture all dependency within the data at frequencies of one hour and lower. © 2000 John Wiley & Sons, Inc. Jrl Fut Mark 20:425–444, 2000