Dynamics of intraday serial correlation in the Italian futures market ∗

We study the serial correlation of high-frequency intraday returns on the Italian stock index futures (FIB30) in the period 2000-2002. We find that intraday autocorrelation is mostly negative for time scales lower than 20 minutes, mainly due to the bid-ask bounce effect. While this supports the efficiency of the Italian futures market, we also provide evidence that intraday serial correlation becomes positive in high volatility regimes. Moreover we find that it is mainly unexpected volatility to make serial correlation rise, and not its predictable part. Our results are supportive of the Chan (1993) model. ∗We wish to acknowledge Borsa Italiana SPA, and in particular Concetta Ricciardi and Ada De Roma, for providing the excellent data set. We also acknowledge Rosario Rizza, Maria Pasquale and Carmelo Genovese for research assistance, as well as the Department of Physics of the University of Pisa. Giampiero M. Gallo, Tarcisio del Prete and Fulvio Corsi provided useful comments. We finally acknowledge the participants at the II Workshop on high-frequency data held in Perugia, 2004. All errors and omissions are our own.