By studying the differences between futures prices and exchange-traded fund prices for the S&P 500 index, original results are obtained about the distribution and persistence of the microstructure noise component created by bid/ask spreads and discrete price scales. The bivariate density of this...

We propose a price duration based covariance matrix estimator using high frequency transactions data. The effect of the last-tick time-synchronisation methodology, together with effects of important market microstructure components is analysed through a comprehensive Monte Carlo study. To...

We use, for the first time, a time-varying copula model to investigate the impact of the introduction of the Euro on the dependence between seventeen European stock markets during the period 1994-2003. The model is implemented with a GJR-GARCH-t model for the marginal distributions and the...

The theoretical relationship between the risk-neutral density (RND) of the euro/pound cross-rate and the bivariate RND of the dollar/euro and the dollar/pound rates is derived; the required bivariate RND is defined by the dollar-rate marginal RNDs and a copula function. The cross-rate RND can be...

Previous papers that test whether sentiment is useful for predicting volatility ignore whether lagged returns information might also be useful for this purpose. By doing so, these papers potentially overestimate the role of sentiment in predicting volatility. In this paper we test whether...

Asset price volatility appears to be more persistent than can be captured by individual, short memory, autoregressive or moving average components. Fractional integration offers a very parsimonious and tempting formulation of this long memory property of volatility but other explanations such as...

Pure-jump stochastic processes are shown to be capable of explaining many empirical features of high-frequency asset prices. A simple pure-jump process can match the empirical bipower, realized variance and jump detection statistics of Andersen, Bollerslev and Dobrev (2007) at the two-minute...

We compare forecasts of the realized volatility of the pound, mark and yen exchange rates against the dollar, calculated from intraday rates, over horizons ranging from one day to three months. Our forecasts are obtained from a short memory ARMA model, a long memory ARFIMA model, a GARCH model...

In this study we compare volatility forecasts over a thirty-minute horizon for the spot exchange rates of the Deutsche Mark and the Japanese Yen against the US dollar. Explicitly modeling the intraday seasonal pattern improves the out-of-sample forecasting performance. We find that a seasonal...

The economic consequences of a long memory assumption about volatility are documented, by comparing implied volatilities for option prices obtained from short and long memory volatility processes. Numerical results are given for options on the S amp; P 100 index from 1984 to 1998, with lives up...