A0615
Title: Testing the zero-process of intraday financial return for non-stationary periodicity
Authors: Genaro Sucarrat - BI Norwegian Business School (Norway) [presenting]
Ovidijus Stauskas - BI Norwegian Business School (Norway)
Abstract: Recent studies show that the zero-process of observed intraday financial returns is frequently characterised by non-stationary periodicity. As liquidity varies across the trading day, not only does unconditional volatility change, but also the unconditional zero probability. While scaling returns by the time-varying intraday volatility may stabilise volatility, it does not make the zero-process of scaled returns stationary. Moreover, recent studies document that a non-stationary zero-process can have major effects on risk estimates since standard methods rely on the stationarity of the transformed returns. Formal tests for non-stationary periodicity in the zero process can therefore be of great value in guiding the choice of a suitable risk estimation procedure. Despite this, little attention has been devoted to the derivation of such tests. This gap is filled by developing user-friendly yet flexible and powerful tests that hold under mild assumptions. Next, the empirical illustration reveals that intraday financial returns are widely characterised by non-stationary periodicity in the zero-process.
