Intraday and Long-Run Return Volatility: Heterogeneous News Arrivals and Intraday Seasonals
Torben G. Andersen,University of Virginia
Tim Bollerslev, Northwestern University

Torben and Time completed two papers in connection with this project.

The first paper, “Heterogeneous Information Arrivals and Return Volatility Dynamics: Uncovering the Long-Run in High Frequency Returns,” considers how to simultaneously incorporate long-term and short-term volatility dymanics in the same model. The authors show that by interpreting overall volatility as the manifestation of numerous heterogeneous information arrivals, sudden bursts of volatility typically will have both short-run and long-run components. Long-memory characteristics therefore constitute an intrinsic feature of the return generating process, rather than a manifestation of occasional structural shifts, as others have suggested. An examination of five-minute Deutschemark-U.S. Dollar exchange rates demonstrates the usefulness of the model.

The second paper, “Deutsche Mark-Dollar Volatility: Intraday Activity Patterns, Macroeconomic Announcements, and Longer Run Dependencies,” extends the empirical results of the first paper. It provides a more detailed

characterization of the volatility in the Deutsche mark-dollar foreign exchange market. Their approach captures the intraday activity patterns, the macroeconomic announcements, and the volatility persistence (ARCH) known from daily returns. The different features are separately quantified and shown to account for a substantial fraction of return variability, both at the intraday and daily level. The implications of the results for the interpretation of the fundamental “driving forces” behind the volatility process is also discussed. (Accepted Spring 1999.)