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Testing for Market Microstructure Effects in Intraday Volatility: A Reassessment of the Tokyo FX Experiment

Listed author(s):
  • Torben G. Anderson
  • Tim Bollerslev
  • Ashish Das

This paper develops mew robust inference procedures for analyzing the intraday return volatility patterns that constitute a focal point of much market microstructure theory. Our empirical analysis is motivated by the recent lifting of trading restrictions in the interbank foreign exchange (FX) market for Japanese banks during the Tokyo lunch period. Ito, Lyons, and Melvin (1998) (ILM) argue that this deregulation resulted in a highly significant shift in the volatility pattern across the entire Japanese trading day, indicating that private information is an important component of the price formation process in the FX market. In contrast, our robust analysis finds no evidence for any discernible change in the pattern outside of the Tokyo lunch period. Moreover, we document that the standard variance-ratio methodology inference in this high-frequency data context.

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File URL: http://www.nber.org/papers/w6666.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6666.

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Date of creation: Jul 1998
Publication status: published as "Variance-ratio Statistics and High-frequency Data: Testing for Changes in Intraday Volatility Patterns" Journal of Finance, Volume 56: Issue 1 Pages 305 - 327 (2001)
Handle: RePEc:nbr:nberwo:6666
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