Simone Bianco* and Roberto Reno (University of Siena) Abstract: We study the impact of volatility on intraday serial correlation, at
time scales of less than 20 minutes, exploiting a data set with all transaction
on SPX500 futures from 1993 to 2001. We show that, while realized volatility
and intraday serial correlation are linked, this relation is driven by
unexpected volatility only, that is by the fraction of volatility which
cannot be forecasted. The impact of predictable volatility is instead
found to be negative (LeBaron effect). Our results are robust to microstructure
noise, and they confirm the leading economic theories on price formation. |