Volume-driven time-of-day effects in intraday volatility models

Igor Ferreira Batista Martins (), Audronè Virbickaitè (), Hoang Nguyen and Hedibert Freitas Lopes ()
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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/
Hedibert Freitas Lopes: nsper Institute of Education and Research, Sao Paulo, Brazil, Postal: nsper Institute of Education and Research, Rua Quatá, 300, Vila Olímpia, 04546-042 São Paulo/SP , Brazil,, https://hedibert.org/

No 2025:14, Working Papers from Örebro University, School of Business

Abstract: We propose a high-frequency stochastic volatility model that integrates persistent component, intraday periodicity, and volume-driven time-of-day effects. By allowing intraday volatility patterns to respond to lagged trading activity, the model captures economically and statistically relevant departures from traditional intraday seasonality effects. We find that the volumedriven component accounts for a substantial share of intraday volatility for futures data across equity indexes, currencies, and commodities. Out-of-sample, our forecasts achieve near-zero intercepts, unit slopes, and the highest R2 values in Mincer-Zarnowitz regressions, while horserace regressions indicate that competing forecasts add little information once our predictions are included. These statistical improvements translate into economically meaningful gains, as volatility-managed portfolio strategies based on our model consistently improve Sharpe ratios. Our results highlight the value of incorporating lagged trading activity into high-frequency volatility models.

Keywords: Intraday volatility; high-frequency; volume; periodicity. (search for similar items in EconPapers)
JEL-codes: C11 C22 C53 C58 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2025-11-21
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-for, nep-mst and nep-rmg
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