Asymmetric volatility dynamics in high frequency FTSE-100 stock index futures

David McMillan and Alan Speight

Applied Financial Economics, 2003, vol. 13, issue 8, 599-607

Abstract: This paper examines whether variants of the GARCH class of model with the capacity to accommodate volatility asymmetries and volatility feedback are able to provide an adequate representation of non-linear dependency in intraday FTSE-100 stock index futures returns at the quarter-hour and hourly frequency. Significant variance asymmetry is identified, and such that negative shocks induce a greater response in volatility than equivalent positive shocks, but with the additional effect of subsequently depressing volatility at the 15-minute frequency. In the absence of financial leverage arguments in the market considered, and the absence of a statistically significant volatility feedback effect, such asymmetry is interpreted as indirect evidence for the presence of noise traders, attracted to such markets by low transaction costs and margin requirements. In contrast with previous results using intraday data, a notable absence of remaining structure in asymmetric GARCH models at the hourly frequency is found, but neither symmetric nor asymmetric models are able to fully account for nonlinear dependence at the higher intraday frequency.

Date: 2003
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DOI: 10.1080/0960310022000040715

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