Intraday Dynamics of Volatility and Duration: Evidence from the Chinese Stock Market

Chun Liu () and John Maheu

Working Papers from University of Toronto, Department of Economics

Abstract: We propose a new joint model of intraday returns and durations to study the dynamics of several Chinese stocks. We include IBM from the U.S. market for comparison purposes. 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. Our new model strongly dominates existing specifications in the literature. 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 G17 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2010-04-06
New Economics Papers: this item is included in nep-ets, nep-mst and nep-tra
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