Analysis of the intraday effects of economic releases on the currency market
AbstractUsing four years of second-by-second executed trade data, we study the intraday effects of a representative group of scheduled economic releases on three exchange rates: EUR/$, JPY/$ and GBP/$. Using wavelets to analyze volatility behavior, we empirically show that intraday volatility clusters increase as we approach the time of the releases, and decay exponentially after the releases. Moreover, we compare our results with the results of a poll that we conducted of economists and traders. Finally, we propose a wavelet volatility estimator which is not only more efficient than a range estimator that is commonly used in empirical studies, but also captures the market dynamics as accurately as a range estimator. Our approach has practical value in high-frequency algorithmic trading, as well as electronic market making. --
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Bibliographic InfoPaper provided by Karlsruhe Institute of Technology (KIT), Department of Economics and Business Engineering in its series Working Paper Series in Economics with number 3.
Date of creation: 2010
Date of revision:
Foreign exchange; volatility estimation; economic release; wavelet; high frequency;
Other versions of this item:
- Sun, Edward W. & Rezania, Omid & Rachev, Svetlozar T. & Fabozzi, Frank J., 2011. "Analysis of the intraday effects of economic releases on the currency market," Journal of International Money and Finance, Elsevier, vol. 30(4), pages 692-707, June.
- F31 - International Economics - - International Finance - - - Foreign Exchange
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-02 (All new papers)
- NEP-IFN-2010-10-02 (International Finance)
- NEP-MON-2010-10-02 (Monetary Economics)
- NEP-MST-2010-10-02 (Market Microstructure)
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