The fine structure of volatility feedback. II: Overnight and intra-day effects

DOI10.1016/J.PHYSA.2014.01.047MaRDI QIDQ1782696zbMATH OpenOpenAlexFDO

Authors Pierre Blanc, Rémy Chicheportiche, Jean-Philippe Bouchaud

Publication date 20 September 2018

Published in Physica A (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1309.5806

zbMATH Keywords

endogenous feedbackGARCH modelsovernightstock marketsvolatility dynamics

Mathematics Subject Classification ID

Time series, auto-correlation, regression, etc. in statistics (GARCH) (62M10) Applications of statistics to actuarial sciences and financial mathematics (62P05) Statistical methods; risk measures (91G70) Financial applications of other theories (91G80)

Abstract: We decompose, within an ARCH framework, the daily volatility of stocks into overnight and intra-day contributions. We find, as perhaps expected, that the overnight and intra-day returns behave completely differently. For example, while past intra-day returns affect equally the future intra-day and overnight volatilities, past overnight returns have a weak effect on future intra-day volatilities (except for the very next one) but impact substantially future overnight volatilities. The exogenous component of overnight volatilities is found to be close to zero, which means that the lion's share of overnight volatility comes from feedback effects. The residual kurtosis of returns is small for intra-day returns but infinite for overnight returns. We provide a plausible interpretation for these findings, and show that our Intra-Day/Overnight model significantly outperforms the standard ARCH framework based on daily returns for Out-of-Sample predictions.

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Cites work

• Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation
• Fractionally integrated generalized autoregressive conditional heteroskedasticity
• Handbook of econometrics. Vol. 4
• Heterogeneous volatility cascade in financial markets
• Quadratic ARCH Models
• The fine-structure of volatility feedback. I: Multi-scale self-reflexivity

Cited in

(11)

• The fine-structure of volatility feedback. I: Multi-scale self-reflexivity
• Combination of transition probability distribution and stable Lorentz distribution in stock markets
• A coupled component DCS-EGARCH model for intraday and overnight volatility
• Incorporating overnight and intraday returns into multivariate GARCH volatility models
• Quadratic Hawkes processes for financial prices
• Inventory Effects on Daily Returns in Financial Markets
• Time averaging, ageing and delay analysis of financial time series
• Multivariate quadratic Hawkes processes—part I: theoretical analysis
• Coupled GARCH(1,1) model
• On the universality of the volatility formation process: when machine learning and rough volatility agree
• Impact of overnight information on MEM volatility prediction

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