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Heterogeneous Information Arrivals and Return Volatility Dynamics: Uncovering the Long-Run in High Frequency Returns

Torben G. Andersen and Tim Bollerslev
The Journal of Finance
Vol. 52, No. 3, Papers and Proceedings Fifty-Seventh Annual Meeting, American Finance Association, New Orleans, Louisiana January 4-6, 1997 (Jul., 1997), pp. 975-1005
Published by: Wiley for the American Finance Association
DOI: 10.2307/2329513
Stable URL: http://www.jstor.org/stable/2329513
Page Count: 31
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Heterogeneous Information Arrivals and Return Volatility Dynamics: Uncovering the Long-Run in High Frequency Returns
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Abstract

Recent empirical evidence suggests that the interdaily volatility clustering for most speculative returns are best characterized by a slowly mean-reverting fractionally integrated process. Meanwhile, much shorter lived volatility dynamics are typically observed with high frequency intradaily returns. The present article demonstrates, that by interpreting the volatility as a mixture of numerous heterogeneous short-run information arrivals, the observed volatility process may exhibit long-run dependence. As such, the long-memory characteristics constitute an intrinsic feature of the return generating process, rather than the manifestation of occasional structural shifts. These ideas are confirmed by our analysis of a one-year time series of five-minute Deutschemark-U.S. Dollar exchange rates.

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