Instantaneous Volatility Seasonality of High-Frequency Markets in Directional-Change Intrinsic Time

32 Pages Posted: 23 Sep 2018 Last revised: 20 Mar 2019

Date Written: March 12, 2019

Abstract

We propose a novel intraday instantaneous volatility measure which utilises sequences of drawdowns and drawups non-equidistantly spaced in physical time as indicators of high-frequency activity of financial markets. The sequences are re-expressed in terms of directional-change intrinsic time which ticks only when the price curve changes the direction of its trend by a given relative value. We employ the proposed measure to uncover market microstructure weekly volatility seasonality patterns of three Forex and one Bitcoin exchange rates as well as a stock market index. We demonstrate the long memory of instantaneous volatility computed in directional-change intrinsic time. The provided volatility estimation method can be adapted as a universal multiscale risk-management tool independent of the discreteness and the type of analysed large high-frequency data.

Keywords: instantaneous volatility; market microstructure; seasonality; high frequency markets; risk management; computational finance

JEL Classification: G17, G32, C02

Suggested Citation

Petrov, Vladimir and Golub, Anton and Olsen, Richard B., Instantaneous Volatility Seasonality of High-Frequency Markets in Directional-Change Intrinsic Time (March 12, 2019). Available at SSRN: https://ssrn.com/abstract=3243797 or http://dx.doi.org/10.2139/ssrn.3243797

Vladimir Petrov (Contact Author)

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Anton Golub

Flov technologies ( email )

Gotthardstrasse 26
Zug, Zug 6300
Switzerland

Richard B. Olsen

Lykke Corp ( email )

Baarerstrasse 2
Zug, Zug 6300
Switzerland
41793368950 (Phone)

HOME PAGE: http://www.lykke.com

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