TITLE:
Speed of Adjustment and Infraday/Intraday Volatility in the Italian Stock and Futures Markets
AUTHORS:
Pietro Gottardo
KEYWORDS:
Speed of Adjustment, Overshooting, Intraday returns, Stock Index Future
JOURNAL NAME:
Modern Economy,
Vol.2 No.5,
November
25,
2011
ABSTRACT: We estimate the speed of adjustment of prices to value changes in the Italian stock and futures markets using variances in different return intervals. The paper presents evidence that an assumption of linearity for the relationship volatility-time is untenable when intraday and infraday data are used jointly. Prices adjust to new information within three days, but the process is complex with evidence of overshooting and divergent movements in the smaller return intervals. Firms behave differently according to their inclusion or exclusion from the MIB30 index. The speed of adjustment is strongly related to firm-specific characteristics and the log of capitalization explains some of the cross-sectional variability in the adjustment coefficients for most of the return intervals.