Unexpected volatility and intraday serial correlation

Details Unexpected volatility and intraday serial correlation Unexpected volatility and intraday serial correlation

2006-10-03

arxiv.org/abs/physics/0610023v1

Physics

Physics and Society

16 pages, 1 figure, 4 tables. Submitted version

Scientific paper

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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