Scandinavian Working Papers in Business Administration
Working Papers,
Örebro University, School of Business
No 2025:14: Volume-driven time-of-day effects in intraday volatility models
Igor Ferreira Batista Martins (), Audronè Virbickaitè (), Hoang Nguyen () and Hedibert Freitas Lopes ()
Additional contact information
Igor Ferreira Batista Martins: Örebro University School of Business, Postal: Örebro University, School of Business, SE - 701 82 ÖREBRO, Sweden
Audronè Virbickaitè: CUNEF University, Madrid, Spain, Postal: CUNEF University, Calle Almansa, 101, 28040 Madrid, Spain
Hoang Nguyen: Linköping University, Postal: Linköping University, SE-581 83 Linköping, Sweden
Hedibert Freitas Lopes: nsper Institute of Education and Research, Sao Paulo, Brazil, Postal: nsper Institute of Education and Research, Rua Quatá, 300, Vila Olímpia, 04546-042 São Paulo/SP , Brazil,
Abstract: We propose a high-frequency stochastic volatility model that integrates persistent component, intraday periodicity, and volume-driven time-of-day effects. By allowing intraday volatility patterns to respond to lagged trading activity, the model captures economically and statistically relevant departures from traditional intraday seasonality effects. We find that the volumedriven component accounts for a substantial share of intraday volatility for futures data across equity indexes, currencies, and commodities. Out-of-sample, our forecasts achieve near-zero intercepts, unit slopes, and the highest R2 values in Mincer-Zarnowitz regressions, while horserace regressions indicate that competing forecasts add little information once our predictions are included. These statistical improvements translate into economically meaningful gains, as volatility-managed portfolio strategies based on our model consistently improve Sharpe ratios. Our results highlight the value of incorporating lagged trading activity into high-frequency volatility models.
Keywords: Intraday volatility; high-frequency; volume; periodicity.
Language: English
39 pages, November 21, 2025
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