Capital flows and Japanese asset volatility
AbstractCharacterizing asset price volatility is an important goal for financial economists. The literature has shown that variables that proxy for the information arrival process can help explain and/or forecast volatility. Unfortunately, however, obtaining good measures of volume and/or order flow is expensive or difficult in decentralized markets such as foreign exchange. We investigate the extent that Japanese capital flows—which are released weekly—reflect information arrival that improves foreign exchange and equity volatility forecasts. We find that capital flows can help explain transitory shocks to GARCH volatility. Transactions by Japanese residents in foreign bond markets have the most explanatory power among capital flows and that power is much greater in the second subsample.
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Bibliographic InfoPaper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2011-034.
Date of creation: 2011
Date of revision:
Other versions of this item:
- NEP-ALL-2011-11-14 (All new papers)
- NEP-FOR-2011-11-14 (Forecasting)
- NEP-OPM-2011-11-14 (Open Economy Macroeconomic)
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