Empirical Study of Intra-Day Stock Return Volatility

• Activity Number: 537
• Type: Contributed
• Date/Time: Wednesday, August 4, 2010 : 10:30 AM to 12:20 PM
• Sponsor: Section on Risk Analysis
• Author(s): Jian Su*+ and Lan Zhang and Hsing-Chien Kao and Heshan Liu
• Companies: University of Illinois at Chicago and Oxford-Man Institute of Quantitative Finance and University of Illinois at Chicago and Mayo Clinic
• Keywords: Realized Volatility ; High Frequency ; market microstructure

Abstract

It is well known that microstructure noise could have substantial impact on volatility estimation of high frequency stock returns. The Two Scale Realized Volatility (TSRV) estimator makes use of all the available data and at the same time corrects the effect of market microstructure noise. In this study, 30-minute TSRV series is constructed from tick-by-tick Dow Jones 30 stock prices. Our results show that the 30-minute volatility estimate series has the stylized characteristics, including volatility clustering, long memory and displaying U-shape within the day. Also, the volatility for stocks during announcement period is significantly higher than that in non-announcement period. This phenomenon is particularly striking at the opening hour of the announcement day. Forecasting model is investigated for the 30-minute TSRV series.