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Unexpected volatility and intraday serial correlation

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  • Simone Bianco
  • Roberto Ren'o

Abstract

We study the impact of volatility on intraday serial correlation, at time scales of less than 20 minutes, exploiting a data set with all transaction on SPX500 futures from 1993 to 2001. We show that, while realized volatility and intraday serial correlation are linked, this relation is driven by unexpected volatility only, that is by the fraction of volatility which cannot be forecasted. The impact of predictable volatility is instead found to be negative (LeBaron effect). Our results are robust to microstructure noise, and they confirm the leading economic theories on price formation.

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  • Simone Bianco & Roberto Ren'o, 2006. "Unexpected volatility and intraday serial correlation," Papers physics/0610023, arXiv.org.
    • Handle: RePEc:arx:papers:physics/0610023
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    Cited by:

    1. Varsha Kulkarni & Nivedita Deo, 2007. "Correlation and volatility in an Indian stock market: A random matrix approach," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 60(1), pages 101-109, November.

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