Variance-ratio Statistics and High-frequency Data: Testing for Changes in Intraday Volatility Patterns

Authors: Andersen, Torben G.¹; Bollerslev, Tim²; Das, Ashish¹

Source: The Journal of Finance, Volume 56, Number 1, February 2001 , pp. 305-327(23)

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Abstract:

Variance-ratio tests are routinely employed to assess the variation in return volatility over time and across markets. However, such tests are not statistically robust and can be seriously misleading within a high-frequency context. We develop improved inference procedures using a Fourier Flexible Form regression framework. The practical significance is illustrated through tests for changes in the FX intraday volatility pattern following the removal of trading restrictions in Tokyo. Contrary to earlier evidence, we find nodiscernible changes outside of the Tokyo lunch period. We ascribe the difference to the fragile finite-sample inference of conventional variance-ratio procedures and a single outlier.

Document Type: Original article

DOI: http://dx.doi.org/10.1111/0022-1082.00326

Affiliations: 1: Department of Finance, J. L. Kellogg Graduate School of Management, Northwestern University, 2: Department of Economics, Duke University and NBER

Publication date: 2001-02-01