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Non-Parametric Estimation of Intraday Spot Volatility: Disentangling Instantaneous Trend and Seasonality

Thibault Vatter (), Hau-Tieng Wu (), Valérie Chavez-Demoulin () and Bin Yu ()
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Thibault Vatter: Faculty of Business and Economics (HEC), University of Lausanne, 1015 Lausanne, Switzerland
Hau-Tieng Wu: Department of Mathematics, University of Toronto, Toronto M5S2E4, ON, Canada
Valérie Chavez-Demoulin: Faculty of Business and Economics (HEC), University of Lausanne, 1015 Lausanne, Switzerland
Bin Yu: Department of Statistics, University of California, Berkeley 94720, CA, USA

Econometrics, 2015, vol. 3, issue 4, 1-24

Abstract: We provide a new framework for modeling trends and periodic patterns in high-frequency financial data. Seeking adaptivity to ever-changing market conditions, we enlarge the Fourier flexible form into a richer functional class: both our smooth trend and the seasonality are non-parametrically time-varying and evolve in real time. We provide the associated estimators and use simulations to show that they behave adequately in the presence of jumps and heteroskedastic and heavy-tailed noise. A study of exchange rate returns sampled from 2010 to 2013 suggests that failing to factor in the seasonality’s dynamic properties may lead to misestimation of the intraday spot volatility.

Keywords: intraday spot volatility; seasonality; foreign exchange returns; time-frequency analysis; synchrosqueezing (search for similar items in EconPapers)
JEL-codes: B23 C C00 C01 C1 C2 C3 C4 C5 C8 (search for similar items in EconPapers)
Date: 2015
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