Heterogeneous Information Arrivals and Return Volatility Dynamics: Uncovering the Long-Run in High Frequency Returns

Torben Andersen and Tim Bollerslev

Journal of Finance, 1997, vol. 52, issue 3, 975-1005

Abstract: Recent empirical evidence suggests that the interdaily volatility clustering for most speculative returns are best characterized by a slowly mean-reverting fractionally integrated process. Meanwhile, much shorter lived volatility dynamics are typically observed with high frequency intradaily returns. The present article demonstrates that, by interpreting the volatility as a mixture of numerous heterogeneous short-run information arrivals, the observed volatility process may exhibit long-run dependence. As such, the long-memory characteristics constitute an intrinsic feature of the return generating process, rather than the manifestation of occasional structural shifts. These ideas are confirmed by the authors' analysis of a one-year time series of five-minute Deutschemark-U.S. dollar exchange rates. Copyright 1997 by American Finance Association.

Date: 1997
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