Intra-Day Realized Volatility for European and USA Stock Indices

Abstract

The paper constructs measures of intra-day realized volatility for 17 European and USA stock indices. We utilize a model-free de-noising method by assembling the realized volatility in sampling frequency selected according to the volatility signature plot which minimizes the micro-structure effects. Having verified the stylized facts of realized volatility, the dynamic behavior of correlation between realized volatilities is investigated. The correlation among realized volatilities is positive and extremely high, although for some periods it decreases dramatically. The correlation of volatilities within USA (or Europe) is much higher than the correlation of volatilities across USA and Europe. Moreover, we provide evidence that the inter-day adjusted realized volatility reduces significantly the underestimation of the true variability.

Keywords: correlation of volatilities, intra-day data, model-free de-noising, realized volatility, sampling frequency, ultra-high frequency, volatility signature plot

JEL Classification: C14; C32; C50; G11; G15