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Intraday Evidence of the Informational Efficiency of the Yen/Dollar Exchange Rate

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  • Kentaro Iwatsubo

    ()
    (Graduate School of Economics, Kobe University)

  • Yoshihiro Kitamura

    ()
    (Faculty of Economics, University of Toyama)

Abstract

The informational efficiency of the yen/dollar exchange rate is investigated in five market segments within each business day from 1987 to 2007. Among the results, we first find that the daily exchange rate has a cointegrating relationship with the cumula-tive price change of the segment for which the London and New York markets are both open, but not with that of any other segments. Second, the cumulative price change of the London/N.Y. segment is the most persistent among the five market segments in the medium- and long-run. These results suggest that the greatest concentration of informed traders is in the London/N.Y. segment where intraday transactions are the highest. This is consistent with the theoretical prediction by Admati and Pfleiderer (1988) that prices are more informative when trading volume is heavier.

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File URL: http://www.econ.kobe-u.ac.jp/RePEc/koe/wpaper/2008/0801.pdf
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Bibliographic Info

Paper provided by Graduate School of Economics, Kobe University in its series Discussion Papers with number 0801.

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Length: 26 pages
Date of creation: Apr 2008
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Handle: RePEc:koe:wpaper:0801

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Web page: http://www.econ.kobe-u.ac.jp
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Keywords: Informational efficiency; Market segments; Yen/dollar exchange rate;

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  1. Gregory, Allan W. & Hansen, Bruce E., 1996. "Residual-based tests for cointegration in models with regime shifts," Journal of Econometrics, Elsevier, Elsevier, vol. 70(1), pages 99-126, January.
  2. Anat R. Admati, Paul Pfleiderer, 1988. "A Theory of Intraday Patterns: Volume and Price Variability," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 1(1), pages 3-40.
  3. Takatoshi Ito & Yuko Hashimoto, 2006. "Intra-Day Seasonality in Activities of the Foreign Exchange Markets: Evidence From the Electronic Broking System," NBER Working Papers 12413, National Bureau of Economic Research, Inc.
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  6. Robert F. Engle & Takatoshi Ito & Wen-Ling Lin, 1988. "Meteor Showers or Heat Waves? Heteroskedastic Intra-Daily Volatility in the Foreign Exchange Market," NBER Working Papers 2609, National Bureau of Economic Research, Inc.
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  13. Alain P. Chaboud & Sergey Chernenko & Edward Howorka & Raj S. Krishnasami Iyer & David Liu & Jonathan H. Wright, 2004. "The high-frequency effects of U.S. macroeconomic data releases on prices and trading activity in the global interdealer foreign exchange market," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 823, Board of Governors of the Federal Reserve System (U.S.).
  14. Michael Melvin & Bettina Peiers Melvin, 2003. "The Global Transmission of Volatility in the Foreign Exchange Market," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 670-679, August.
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Cited by:
  1. Galagedera, Don U.A. & Kitamura, Yoshihiro, 2012. "Effect of exchange rate return on volatility spill-over across trading regions," Japan and the World Economy, Elsevier, Elsevier, vol. 24(4), pages 254-265.

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