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Journal of Financial Econometrics Advance Access published online on May 17, 2006
Journal of Financial Econometrics, doi:10.1093/jjfinec/nbj014
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© The Author 2006. Published by Oxford University Press. All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org
Received May 25, 2005
Revised February 20, 2006
Accepted March 9, 2006

Article

Leverage and Volatility Feedback Effects in High-Frequency Data

Tim Bollerslev 1 *, Julia Litvinova 2, and George Tauchen 3
     1 Department of Economics, Duke University, Box 90097, Durham, NC 27708
2 The Brattle Group
3 Duke University

* To whom correspondence should be addressed.
Tim Bollerslev, E-mail: boller{at}econ.duke.edu


  Abstract

We examine the relationship between volatility and past and future returns using high-frequency aggregate equity index data. Consistent with a prolonged ‘‘leverage’’ effect, we find the correlations between absolute high-frequency returns and current and past high-frequency returns to be significantly negative for several days, whereas the reverse cross-correlations are generally negligible. We also find that high-frequency data may be used in more accurately assessing volatility asymmetries over longer daily return horizons. Furthermore, our analysis of several popular continuous-time stochastic volatility models clearly points to the importance of allowing for multiple latent volatility factors for satisfactorily describing the observed volatility asymmetries.

Keywords: high-frequency data, leverage effect, stochastic volatility models, temporal aggregation, volatility asymmetry, volatility feedback effect.
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