A Mixed Frequency Stochastic Volatility Model for Intraday Stock Market Returns

Abstract

Abstract We propose a mixed frequency stochastic volatility model for intraday returns. To account for long-memory type of dependence patterns we introduce a long-run component that changes daily and a short-run component that captures the remaining intraday volatility dynamics. We analyze the model’s stochastic properties and extend it to capture leverage effects and overnight return information. The model is estimated by simulated maximum likelihood using efficient importance sampling. We apply the model to 30-min returns of 12 stocks. The results show that the model successfully accounts for the complex dynamic and distributional properties of asset returns both on the intraday and the daily frequency.