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Unexpected volatiltiy and intraday serial correlation

[journal article]

Renò, Roberto; Bianco, Simone

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Abstract We study the impact of volatility on intraday serial correlation, at time scales of less than 20 minutes, exploiting a data set with all transaction on SPX500 futures from 1993 to 2001. We show that, while realized volatility and intraday serial correlation are linked, this relation is driven by unexpected volatility only, that is by the fraction of volatility which cannot be forecasted. The impact of predictable volatility is instead found to be negative (LeBaron effect). Our results are robust to microstructure noise, and they confirm the leading economic theories on price formation.
Classification Basic Research, General Concepts and History of Economics; Economic Statistics, Econometrics, Business Informatics
Method theory application
Free Keywords Volatility; Serial correlation; Variance ratio; High-frequency data
Document language English
Publication Year 2009
Page/Pages p. 465-475
Journal Quantitative Finance, 9 (2009) 4
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)