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DM-Dollar Volatility: Intraday Activity Patterns, Macroeconomic Announcements, and Longer Run Dependencies

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  • Torben G. Andersen
  • Tim Bollerslev

Abstract

This paper characterizes the volatility in the DM-dollar foreign exchange market using an annual sample of five-minute returns. Our modeling approach explicitly captures the pronounced intraday activity patterns, the strong macroeconomic announcement effects, and the volatility persistence, or ARCH effects, familiar from lower frequency returns. The different features are separately quantified and shown, in conjunction, to account for a substantial fraction of the realized return variability, both at the intradaily and daily levels. Moreover, we demonstrate how the high frequency returns, when properly modeled, constitute an extremely valuable and vastly underutilized resource for better understanding the volatility dynamics at the daily or lower frequencies.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5783.

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Date of creation: Oct 1996
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Publication status: published as Torben G. Andersen and Tim Bollerslev. "Deutsche Mark–Dollar Volatility: Intraday Activity Patterns, Macroeconomic Announcements, and Longer Run Dependencies" Volume 53: Issue 1, pp 219 - 265 (February 1998)
Handle: RePEc:nbr:nberwo:5783

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Citations

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Cited by:
  1. Neil, Beattie & Fillion, Jean-François, 1999. "An Intraday Analysis of the Effectiveness of Foreign Exchange Intervention," Working Papers, Bank of Canada 99-4, Bank of Canada.
  2. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Paul Labys, 1999. "The Distribution of Exchange Rate Volatility," New York University, Leonard N. Stern School Finance Department Working Paper Seires, New York University, Leonard N. Stern School of Business- 99-059, New York University, Leonard N. Stern School of Business-.
  3. Cheung, Yin-Wong & Chinn, Menzie David, 2001. "Currency traders and exchange rate dynamics: a survey of the US market," Journal of International Money and Finance, Elsevier, Elsevier, vol. 20(4), pages 439-471, August.
  4. David McMillan & Alan Speight, 2006. "Heterogeneous information flows and intra-day volatility dynamics: evidence from the UK FTSE-100 stock index futures market," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 16(13), pages 959-972.
  5. Torben G. Andersen & Tim Bollerslev, 1997. "Answering the Critics: Yes, ARCH Models Do Provide Good Volatility Forecasts," NBER Working Papers 6023, National Bureau of Economic Research, Inc.
  6. Michael Melvin & Xixi Yin, . "Public Information Arrival, Exchange Rate Volatility, and Quote Frequency," Working Papers, Arizona State University, Department of Economics 96/1, Arizona State University, Department of Economics.
  7. David McMillan & Alan Speight, 2005. "Long-memory and heterogeneous components in high frequency Pacific-Basin exchange rate volatility," Asia-Pacific Financial Markets, Springer, Springer, vol. 12(3), pages 199-226, September.
  8. M. D. Mckenzie & R. D. Brooks, 2003. "The role of information in Hong Kong individual stock futures trading," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 13(2), pages 123-131.
  9. Magdalena E. Sokalska & Ananda Chanda & Robert F. Engle, 2005. "High Frequency Multiplicative Component Garch," Computing in Economics and Finance 2005, Society for Computational Economics 409, Society for Computational Economics.
  10. Michael J. Fleming & Eli M. Remolona, 1996. "Price formation and liquidity in the U.S. treasuries market: evidence from intraday patterns around announcements," Research Paper, Federal Reserve Bank of New York 9633, Federal Reserve Bank of New York.

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