The Influence of Intraday Seasonality on Volatility Transmission Pattern

Abstract

Using data on a five-minute interval basis, this article analyses the effects of the well-documented intraday seasonality on volatility transmission between the spot and futures markets of the CAC40, DAX30 and FTSE100. Remarkable differences in the impulse response analysis and in the dynamic and directional measurement of volatility spillovers are encountered depending on whether the intraday periodic component is considered. Thus, the convenience of removing intraday seasonality seems to be critical to reduce the risk of spurious causality when employing high-frequency data in volatility transmission.

Keywords: high-frequency data, intraday periodic component, flexible fourier form, realized volatility, volatility spillover

JEL Classification: G12, G14, G15, G13