Intraday Dynamics of Asset Returns, Trading Activities, and Implied Volatilities: A Trivariate GARCH Framework

Doojin Ryu () and Hyein Shim ()
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Doojin Ryu: College of Economics, Sungkyunkwan University, Jongno-gu, Seoul, Republic of Korea.
Hyein Shim: Corresponding author. Fiscal Information Research Center, Korea Public Finance Information Service, Seoul, Republic of Korea.

Journal for Economic Forecasting, 2017, issue 2, 45-61

Abstract: This study investigates the intraday dynamic relationship among asset returns, trading volumes, and volatilities in index derivatives markets using an asymmetric trivariate BEKK-GARCH framework. We analyze the returns and trading activities of KOSPI200 futures and calculate the option-implied volatilities using the Black–Scholes model and a model-free approach (i.e., the VKOSPI). We find that more trading activity in the futures market leads to greater next-period returns and that the trading volume has a bi-directionally positive relationship with the volatility. We also find that greater market volatility increases asset returns but that greater returns decrease volatility, which is consistent with the asymmetric returns–volatility relationship and is explained by the risk-return trade-off and the leverage effect.

Keywords: asymmetric BEKK-GARCH; implied volatilities; intraday dynamics; KOSPI200 futures and options; VKOSPI (search for similar items in EconPapers)
JEL-codes: C32 E44 F36 G17 G19 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:rjr:romjef:v::y:2017:i:2:p:45-61

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