Intra-day volatility components in FTSE-100 stock index futures

Recent research has suggested that intra-day volatility may contain both sh ort-run and long-run components due to the existence of heterogeneous infor mation flows or heterogeneous market agents (Andersen a Bollerslev 1997a, 1 997b; Muller et al., 1997). We report direct evidence for the existence of such a volatility decomposition in intra-day UK FTSE-100 futures returns da ta at frequencies of one hour and higher using the permanent-transitory com ponent variance model of Engle and Lee (1993). Moreover, the transitory com ponent identified exhibits rapid decay, volatility at the half-day frequenc y being completely dominated by the highly persistent permanent component. The model also is able to capture all dependency within the data at frequen cies of one hour and lower. (C) 2000 John Wiley & Sons, Inc.