Non-Parametric Estimation of Intraday Spot Volatility: Disentangling Instantaneous Trend and Seasonality
34 Pages Posted: 23 Nov 2013 Last revised: 4 Aug 2016
Date Written: August 19, 2015
We provide a new framework for modeling trends and periodic patterns in high-frequency financial data. Seeking adaptivity to ever-changing market conditions, we enlarge the Fourier flexible form into a richer functional class: both our smooth trend and the seasonality are non-parametrically time-varying and evolve in real time. We provide the associated estimators and use simulations to show that they behave adequately in the presence of jumps and heteroskedastic and heavy-tailed noise. A study of exchange rate returns sampled from 2010 to 2013 suggests that failing to factor in the seasonality's dynamic properties may lead to misestimation of the intraday spot volatility.
Keywords: Intraday spot volatility, Seasonality, Foreign exchange returns, Time-frequency analysis, Synchrosqueezing
JEL Classification: C14, C22, C51, C52, C58, G17
Suggested Citation: Suggested Citation