Intraday Dynamics of Volatility and Duration: Evidence from Chinese Stocks

26 Pages Posted: 12 Nov 2011

See all articles by Chun Liu

Chun Liu

University of Toronto; Tsinghua University - School of Economics and Management

John M. Maheu

McMaster University - Michael G. DeGroote School of Business; RCEA

Date Written: May 11, 2011

Abstract

We propose a new joint model of intraday returns and durations to study the dynamics of several Chinese stocks. We include IBM from the U.S. market for comparison purposes. Flexible innovation distributions are used for durations and returns, and the total variance of returns is decomposed into different volatility components associated with different transaction horizons. Our new model strongly dominates existing specifications in the literature. The conditional hazard functions are non-monotonic and there is strong evidence for different volatility components. Although diurnal patterns, volatility components, and market microstructure implications are similar across the markets, there are interesting differences. Durations for lightly traded Chinese stocks tend to carry more information than heavily traded stocks. Chinese investors usually have longer investment horizons, which may be explained by the specific trading rules in China.

Keywords: Market microstructure, Transaction horizon, High-frequency data, ACD, GARCH

JEL Classification: C22, C11, G10

Suggested Citation

Liu, Chun and Liu, Chun and Maheu, John M., Intraday Dynamics of Volatility and Duration: Evidence from Chinese Stocks (May 11, 2011). Available at SSRN: https://ssrn.com/abstract=1958368 or http://dx.doi.org/10.2139/ssrn.1958368

Chun Liu (Contact Author)

University of Toronto ( email )

Toronto, Ontario M5S 3G8
Canada

Tsinghua University - School of Economics and Management ( email )

Beijing, 100084
China

John M. Maheu

McMaster University - Michael G. DeGroote School of Business ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

HOME PAGE: http://profs.degroote.mcmaster.ca/ads/maheujm/

RCEA

Via Patara, 3
Rimini (RN), RN 47900
Italy

HOME PAGE: http://www.rcfea.org/

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