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Nonlinear dynamics in high‐frequency intraday financial data: Evidence for the UK long gilt futures market
Author(s) -
McMillan David G.,
Speight Alan E. H.
Publication year - 2002
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/fut.10043
Subject(s) - autoregressive model , futures contract , econometrics , futures market , volatility (finance) , economics , nonlinear system , realized variance , heteroscedasticity , financial economics , transaction data , database transaction , computer science , physics , quantum mechanics , programming language
Abstract Recent research investigating the properties of high‐frequency financial data has suggested that thestochastic nonlinearity widely present in such data may be characterized by heterogeneous components inconditional volatility, and nonlinear dependence of threshold autoregressive form due to market frictions. Thisarticle tests for the presence of such effects in intraday long gilt futures returns on the UK LIFFE market.Tests against the null of linearity indicate the significance of smooth transition autoregressive nonlinearitiesin such returns at the 5‐min frequency, which entails a first‐order autoregressive process withswitching intercept. This nonlinear structure is robust to the presence of asymmetric and component structuresin conditional variance, and consistent with the existence of heterogeneous traders facing different levels oftransaction costs, noise trader risk, or capital constraints. © 2002 Wiley Periodicals, Inc. Jrl Fut Mark22:1037–1057, 2002