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Instantaneous Volatility Seasonality of High-Frequency Markets in Directional-Change Intrinsic Time


Petrov, Vladimir; Golub, Anton; Olsen, Richard (2019). Instantaneous Volatility Seasonality of High-Frequency Markets in Directional-Change Intrinsic Time. Journal of Risk and Financial Management, 12(2):54.

Abstract

We propose a novel intraday instantaneous volatility measure which utilises sequences of drawdowns and drawups non-equidistantly spaced in physical time as indicators of high-frequency activity of financial markets. The sequences are re-expressed in terms of directional-change intrinsic time which ticks only when the price curve changes the direction of its trend by a given relative value. We employ the proposed measure to uncover weekly volatility seasonality patterns of three Forex and one Bitcoin exchange rates, as well as a stock market index. We demonstrate the long memory of instantaneous volatility computed in directional-change intrinsic time. The provided volatility estimation method can be adapted as a universal multiscale risk-management tool independent of the discreteness and the type of analysed high-frequency data.

Abstract

We propose a novel intraday instantaneous volatility measure which utilises sequences of drawdowns and drawups non-equidistantly spaced in physical time as indicators of high-frequency activity of financial markets. The sequences are re-expressed in terms of directional-change intrinsic time which ticks only when the price curve changes the direction of its trend by a given relative value. We employ the proposed measure to uncover weekly volatility seasonality patterns of three Forex and one Bitcoin exchange rates, as well as a stock market index. We demonstrate the long memory of instantaneous volatility computed in directional-change intrinsic time. The provided volatility estimation method can be adapted as a universal multiscale risk-management tool independent of the discreteness and the type of analysed high-frequency data.

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Contributors:University of Zurich, Lykke Corp, flov technologies AG
Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:1 April 2019
Deposited On:16 Jan 2020 08:16
Last Modified:16 Jan 2020 08:16
Publisher:MDPI Publishing
ISSN:1911-8074
OA Status:Gold
Free access at:Publisher DOI. An embargo period may apply.
Publisher DOI:https://doi.org/10.3390/jrfm12020054
Official URL:https://www.mdpi.com/1911-8074/12/2/54
Other Identification Number:merlin-id:17734

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