Intraday dynamics of volatility and duration: Evidence from Chinese stocks

Chun Liu () and John Maheu

Pacific-Basin Finance Journal, 2012, vol. 20, issue 3, 329-348

Abstract: We propose a new joint model of intraday returns and durations to study the dynamics of several Chinese stocks. We include three U.S. stocks for comparison. Flexible innovation distributions are used for durations and returns, and the total variance of returns is decomposed into different volatility components associated with different transaction horizons. The new model provides strong improvements in density forecasts for duration and returns and only modest gains for points forecasts of the variance of returns. The conditional hazard functions are non-monotonic and there is strong evidence for different volatility components. Although diurnal patterns, volatility components, and market microstructure implications are similar across the markets, there are interesting differences. Durations for lightly traded Chinese stocks tend to carry more information than heavily traded stocks. Chinese investors usually have longer investment horizons, which may be explained by the specific trading rules in China.

Keywords: Market microstructure; Transaction horizon; High-frequency data; ACD; GARCH (search for similar items in EconPapers)
JEL-codes: C11 C22 G10 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:20:y:2012:i:3:p:329-348

DOI: 10.1016/j.pacfin.2011.11.001

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