Estimating Japanese Equity Volatility Across Trading Sessions

Summary

The study measures realized volatility separately for the Tokyo Stock Exchange’s morning and afternoon sessions. This separation is intended to avoid distortions from non-trading hours when calculating volatility from high-frequency stock data. It compares estimates made at different sampling frequencies and evaluates how market microstructure noise biases realized volatility as the sampling interval changes.

After accounting for that bias, the authors standardize returns by realized volatility. They report that the resulting returns are approximately Gaussian, with volatility varying over time, a finding consistent with the mixture of distributions hypothesis. The document provides a methodological analysis and a reported statistical result, rather than a trading strategy or evidence of profitability. It gives no details here about the sample period, specific stocks, exact sampling frequencies, or the size of the noise effects, so the findings’ scope and practical implications cannot be assessed from this description alone.

Key ideas

• The study computes realized volatility separately for the market’s morning and afternoon sessions.
• It examines how sampling frequency affects microstructure noise bias in realized volatility estimates.
• Returns standardized by the adjusted volatility are reported to be approximately Gaussian.
• The findings are described as consistent with time-varying volatility and the mixture of distributions hypothesis.

Tags

# Analysis of Realized Volatility in Two Trading Sessions of the Japanese Stock Market


# Analysis of Realized Volatility in Two Trading Sessions of the Japanese Stock Market









We analyze realized volatilities constructed using high-frequency stock data on the Tokyo Stock Exchange. In order to avoid non-trading hours issue in volatility calculations we define two realized volatilities calculated separately in the two trading sessions of the Tokyo Stock Exchange, i.e. morning and afternoon sessions. After calculating the realized volatilities at various sampling frequencies we evaluate the bias from the microstructure noise as a function of sampling frequency. Taking into account of the bias to realized volatility we examine returns standardized by realized volatilities and confirm that price returns on the Tokyo Stock Exchange are described approximately by Gaussian time series with time-varying volatility, i.e. consistent with a mixture of distributions hypothesis.

Shown in full with attribution under the source's licence. Licence: abstract CC0

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.