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Activity Number:
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247
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Type:
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Contributed
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Date/Time:
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Tuesday, July 31, 2007 : 8:30 AM to 10:20 AM
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Sponsor:
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Business and Economics Statistics Section
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| Abstract - #309332 |
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Title:
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Empirical Analysis of Volatility Dynamics in High-Frequency Returns with a Time-Varying Component Model
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Author(s):
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Ka Sing Man*+ and Chunchi Wu
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Companies:
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Western Illinois University and Singapore Management School
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Address:
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IMDS Dept, Macomb, IL, 61455,
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Keywords:
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high frequency returns ; intraday periodicity ; time-varying cyclical components ; volatility persistence
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Abstract:
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We propose a new time-varying component model to analyze the intraday return volatility dynamics and the source of long-run volatility persistence. We apply the model to study IBM intraday returns. Empirical evidence indicates that the component model, consisting of a time-varying mean of absolute returns and two cosine components with time-varying amplitudes, captures very well the pronounced periodicity and persistence behaviors exhibited in the empirical autocorrelation pattern. We find that the long-run volatility persistence is driven predominantly by daily level shifts in mean absolute returns. After adjusting for these intradaily components, the filtered returns behave much like a Gaussian noise, suggesting that the model is properly specified. Furthermore, the predictive performance of using the component model for future volatility is addressed.
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