Fast and Slow Level Shifts in Intraday Stochastic Volatility

Igor Ferreira Batista Martins (), Audronè Virbickaitè (), Hoang Nguyen and Freitas Lopes Hedibert ()
Additional contact information
Audronè Virbickaitè: CUNEF University, Madrid, Spain, Postal: CUNEF University, Calle Almansa, 101, 28040 Madrid, Spain, https://www.cunef.edu/en/faculty-and-research/virbickaite-audrone/
Freitas Lopes Hedibert: Insper Institute of Education and Research, Postal: Insper Institute of Education and Research, R. Quatá, 300 - Vila Olímpia, São Paulo , SP, 04546-042, Brasilien, https://hedibert.org/

No 2025:12, Working Papers from Örebro University, School of Business

Abstract: This paper proposes a mixed-frequency stochastic volatility model for intraday returns that captures fast and slow level shifts in the volatility level induced by news from both low-frequency variables and scheduled announcements. A MIDAS component describes slow-moving changes in volatility driven by daily variables, while an announcement component captures fast eventdriven volatility bursts. Using 5-minute crude oil futures returns, we show that accounting for both fast and slow level shifts significantly improves volatility forecasts at intraday and daily horizons. The superior forecasts also translate into higher Sharpe ratios using the volatilitymanaged portfolio strategy.

Keywords: Intraday volatility; high-frequency; announcements; MIDAS; oil; sparsity. (search for similar items in EconPapers)
JEL-codes: C22 C52 C58 G32 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2025-11-07
New Economics Papers: this item is included in nep-ecm, nep-ene, nep-ets, nep-for and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:oruesi:2025_012

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