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Intraday return inefficiency and long memory in the volatilities of forex markets and the role of trading volume

Author

Listed:
  • Syed Jawad Hussain Shahzad

    (Ton Duc Thang University [Hô-Chi-Minh-City])

  • Jose Areola Hernandez

    (Rennes SB - Rennes School of Business)

  • Waqas Hanif

    (CUI - COMSATS University Islamabad)

  • Ghulam Mujtaba Kayani

    (CIIT - COMSATS Institute of Information Technology [Islamabad])

Abstract

We investigate the dynamics of efficiency and long memory, and the impact of trading volume on the efficiency of returns and volatilities of four major traded currencies, namely, the EUR, GBP, CHF and JPY. We do so by implementing full sample and rolling window multifractal detrended fluctuation analysis (MF-DFA) and a quantile-on-quantile (QQ) approach. This paper sheds new light by employing high frequency (5-min interval) data spanning from Jan 1, 2007 to Dec 31, 2016. Realized volatilities are estimated using Andersen et al.’s (2001) measure, while the QQ method employed is drawn from Sim and Zhou (2015). We find evidence of higher efficiency levels in the JPY and CHF currency markets. The impact of trading volume on efficiency is only significant for the JPY and CHF currencies. The GBP currency appears to be the least efficient, followed by the EUR. Implications of the results are discussed.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Syed Jawad Hussain Shahzad & Jose Areola Hernandez & Waqas Hanif & Ghulam Mujtaba Kayani, 2018. "Intraday return inefficiency and long memory in the volatilities of forex markets and the role of trading volume," Post-Print hal-01813245, HAL.
    • Handle: RePEc:hal:journl:hal-01813245
    DOI: 10.1016/j.physa.2018.04.016
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    Cited by:

    1. Corzo, Teresa & Martin-Bujack, Karin & Portela, Jose & Rodriguez-Gallego, Alejandro, 2025. "Floating exchange rate efficiency: Grouping patterns and pandemic impacts," International Economics, Elsevier, vol. 182(C).
    2. Faheem Aslam & Wahbeeah Mohti & Paulo Ferreira, 2020. "Evidence of Intraday Multifractality in European Stock Markets during the Recent Coronavirus (COVID-19) Outbreak," IJFS, MDPI, vol. 8(2), pages 1-13, May.
    3. Pengbo Wan & Ghulam Mujtaba & Saira Ashfaq & Song Liangrong & Rana Muhammad Nasir, 2025. "Are rare earth stocks efficient? Novel insights using asymmetric MF-DFA," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 11(1), pages 1-17, December.
    4. Aslam, Faheem & Aziz, Saqib & Nguyen, Duc Khuong & Mughal, Khurrum S. & Khan, Maaz, 2020. "On the efficiency of foreign exchange markets in times of the COVID-19 pandemic," Technological Forecasting and Social Change, Elsevier, vol. 161(C).
    5. Henao-Londono, Juan C. & Guhr, Thomas, 2022. "Foreign exchange markets: Price response and spread impact," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 589(C).
    6. Yamani, Ehab, 2023. "Return–volume nexus in financial markets: A survey of research," Research in International Business and Finance, Elsevier, vol. 65(C).
    7. Xu, Yanyan & Huang, Dengshi & Ma, Feng & Qiao, Gaoxiu, 2019. "The heterogeneous impact of liquidity on volatility in Chinese stock index futures market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 517(C), pages 73-85.
    8. Rupel Nargunam & Ananya Lahiri, 2022. "Persistence in daily returns of stocks with highest market capitalization in the Indian market," Digital Finance, Springer, vol. 4(4), pages 341-374, December.
    9. Naeem, Muhammad Abubakr & Farid, Saqib & Ferrer, Román & Shahzad, Syed Jawad Hussain, 2021. "Comparative efficiency of green and conventional bonds pre- and during COVID-19: An asymmetric multifractal detrended fluctuation analysis," Energy Policy, Elsevier, vol. 153(C).
    10. Li, Songsong & Xu, Nan & Hui, Xiaofeng, 2020. "International investors and the multifractality property: Evidence from accessible and inaccessible market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 559(C).
    11. Khurshid, Adnan & Khan, Khalid & Cifuentes-Faura, Javier & Chen, Yufeng, 2024. "Asymmetric multifractality: Comparative efficiency analysis of global technological and renewable energy prices using MFDFA and A-MFDFA approaches," Energy, Elsevier, vol. 289(C).
    12. Shahzad, Syed Jawad Hussain & Bouri, Elie & Kayani, Ghulam Mujtaba & Nasir, Rana Muhammad & Kristoufek, Ladislav, 2020. "Are clean energy stocks efficient? Asymmetric multifractal scaling behaviour," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 550(C).
    13. A. Gómez-Águila & J. E. Trinidad-Segovia & M. A. Sánchez-Granero, 2022. "Improvement in Hurst exponent estimation and its application to financial markets," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-21, December.
    14. Schadner, Wolfgang, 2021. "On the persistence of market sentiment: A multifractal fluctuation analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 581(C).

    More about this item

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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