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Announcement Effects and Seasonality in the Intra-day Foreign Exchange Market

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  • Richard Payne

Abstract

This paper examines two aspects of spot FX volatility. Using intra-daily quotation data on the Deutsche Mark/Dollar we simultaneously estimate the deterministic intra-daily seasonal pattern inherent in volatility and the effects of US macroeconomic announcements. The empirical specification and estimation technique is based on the Stochastic Volatility methodology contained in Harvey, Ruiz and Shephard (1994). Results conform with previous work, in that ¶news¶ effects are strong and persistent, being felt for over one hour after the initial release time. Inclusion of an explicit seasonal is shown to be essential for the accurate estimation of other volatility components. Further estimations allow us to examine which particular pieces of US data move the markets. These result show that the most important statistics are those associated with the Employment and Mercantile Trade reports.

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File URL: http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/fmgdps/dp238.pdf
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Bibliographic Info

Paper provided by Financial Markets Group in its series FMG Discussion Papers with number dp238.

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Date of creation: Mar 1996
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Handle: RePEc:fmg:fmgdps:dp238

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Web page: http://www.lse.ac.uk/fmg/

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Cited by:
  1. Anderson, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Vega, Clara, 2002. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange," Working Papers 02-1, University of Pennsylvania, Wharton School, Weiss Center.
  2. VEREDAS, David & RODRIGUEZ-POO, Juan & ESPASA, Antoni, 2002. "On the (intradaily) seasonality and dynamics of a financial point process: a semiparametric approach," CORE Discussion Papers 2002023, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Melvin, Michael & Yin, Xixi, 2000. "Public Information Arrival, Exchange Rate Volatility, and Quote Frequency," Economic Journal, Royal Economic Society, vol. 110(465), pages 644-61, July.
  4. Robinson, Peter M. & Henry, Marc, 2003. "Higher-order kernel semiparametric M-estimation of long memory," Journal of Econometrics, Elsevier, vol. 114(1), pages 1-27, May.
  5. Martin Evans, 2000. "FX trading and Exchange Rate Dynamics," Working Papers gueconwpa~00-00-04, Georgetown University, Department of Economics.
  6. Martin D. D. Evans(Georgetown University and NBER), 2005. "What are the Origins of Foreign Exchange Movements?," Working Papers gueconwpa~05-05-06, Georgetown University, Department of Economics.
  7. Beltratti, Andrea & Morana, Claudio, 1999. "Computing value at risk with high frequency data," Journal of Empirical Finance, Elsevier, vol. 6(5), pages 431-455, December.
  8. Torben G. Andersen & Tim Bollerslev, 1996. "DM-Dollar Volatility: Intraday Activity Patterns, Macroeconomic Announcements, and Longer Run Dependencies," NBER Working Papers 5783, National Bureau of Economic Research, Inc.
  9. David McMillan & Alan Speight, 2005. "Long-memory and heterogeneous components in high frequency Pacific-Basin exchange rate volatility," Asia-Pacific Financial Markets, Springer, vol. 12(3), pages 199-226, September.
  10. Danielsson, J. & Payne, R., 2002. "Real trading patterns and prices in spot foreign exchange markets," Journal of International Money and Finance, Elsevier, vol. 21(2), pages 203-222, April.
  11. Evans, Kevin & Speight, Alan, 2010. "International macroeconomic announcements and intraday euro exchange rate volatility," Journal of the Japanese and International Economies, Elsevier, vol. 24(4), pages 552-568, December.
  12. Morana, Claudio & Beltratti, Andrea, 2000. "Central bank interventions and exchange rates: an analysis with high frequency data," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(3-4), pages 349-362, December.
  13. Han, Young Wook, 2008. "Intraday effects of macroeconomic shocks on the US Dollar-Euro exchange rates," Japan and the World Economy, Elsevier, vol. 20(4), pages 585-600, December.
  14. Neil, Beattie & Fillion, Jean-François, 1999. "An Intraday Analysis of the Effectiveness of Foreign Exchange Intervention," Working Papers 99-4, Bank of Canada.

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