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Heterogeneous Information Arrivals and Return Volatility Dynamics: Uncovering the Long‐Run in High Frequency Returns
Author(s) -
ANDERSEN TORBEN G.,
BOLLERSLEV TIM
Publication year - 1997
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1997.tb02722.x
Subject(s) - volatility (finance) , volatility clustering , econometrics , economics , realized variance , long memory , forward volatility , mean reversion , liberian dollar , us dollar , implied volatility , financial economics , exchange rate , monetary economics , autoregressive conditional heteroskedasticity , finance
Recent empirical evidence suggests that the interdaily volatility clustering for most speculative returns are best characterized by a slowly mean‐reverting fractionally integrated process. Meanwhile, much shorter lived volatility dynamics are typically observed with high frequency intradaily returns. The present article demonstrates, that by interpreting the volatility as a mixture of numerous heterogeneous short‐run information arrivals, the observed volatility process may exhibit long‐run dependence. As such, the long‐memory characteristics constitute an intrinsic feature of the return generating process, rather than the manifestation of occasional structural shifts. These ideas are confirmed by our analysis of a one‐year time series of five‐minute Deutschemark‐U.S. Dollar exchange rates.