McMillan D & Speight AEH (2006) Volatility dynamics and heterogeneous markets. International Journal of Finance and Economics, 11 (2), pp. 115-121. https://doi.org/10.1002/ijfe.281
Recent research has suggested that intra-day volatility may possess a component structure, resulting either from the arrival of heterogeneous information or the actions of heterogeneous market agents. This paper reports direct evidence for the existence of such components in S&P500 index and DM/$ exchange rate data. Estimation of a FIGARCH model supports the contention that volatility dynamics result from multiple sources. Using a HARCH conditional variance model which defines volatility components over differing time horizons, confirmatory evidence of heterogeneous components is reported, in which context the impact of high-frequency speculation and noise-trading are particularly apparent.
Intra-day; heterogeneous markets; HARCH
International Journal of Finance and Economics: Volume 11, Issue 2