Determinants of the Component Structure of Intraday Return Distributions
20 Pages Posted: 6 Oct 2010
Date Written: May 4, 2009
There is existing evidence of equity returns having a mixture distribution with multiple component structures. Following the increasing interest in intraday trading, this article examines determinants of intraday equity return distributions and finds that greater information flow and stock liquidity reduce the number of components while greater heterogeneity amongst traders increases the number of components. These results show that when empirically modelling intraday return distributions allowance needs to be made for their time varying nature and the fact that they are conditional on the liquidity and information flow of a stock. In addition, the results reinforce the recent emphasis by market regulators on information flow and liquidity being key to increasing transparency and reducing uncertainty (multiple components in the return distribution).
Keywords: Return Distribution, Intraday, Information Flow, Liquidity, High-frequency Data, Market Microstructure.
JEL Classification: G10, G14, C16, C22
Suggested Citation: Suggested Citation