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

1
Department of Banking and Finance, University of Zurich, Plattenstrasse 14, 8032 Zurich, Switzerland
2
Flov Technologies AG, Gotthardstrasse 26, 6300 Zug, Switzerland
3
Lykke Corp., Alpenstrasse 9, 6300 Zug, Switzerland
*
Author to whom correspondence should be addressed.
Current address: Department of Banking and Finance, University of Zurich, Plattenstrasse 14, 8032 Zurich, Switzerland.
J. Risk Financial Manag. 2019, 12(2), 54; https://doi.org/10.3390/jrfm12020054
Received: 28 February 2019 / Revised: 24 March 2019 / Accepted: 26 March 2019 / Published: 1 April 2019
(This article belongs to the Special Issue Computational Finance)
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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 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 high-frequency data. View Full-Text
Keywords: instantaneous volatility; directional-change; seasonality; forex; bitcoin; S&P500; risk management; drawdown instantaneous volatility; directional-change; seasonality; forex; bitcoin; S&P500; risk management; drawdown
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Petrov, V.; Golub, A.; Olsen, R. Instantaneous Volatility Seasonality of High-Frequency Markets in Directional-Change Intrinsic Time. J. Risk Financial Manag. 2019, 12, 54.

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