Time-varying volatility in the foreign exchange market: New evidence on its persistence and on currency spillovers

Journal of Business Finance and Accounting

Volumn 31, Issue 5-6, 2004, Pages 759-793

  Chowdhury, Ibrahim ^a   Sarno, Lucio ^b  

^a UNIVERSITY OF OXFORD   (United Kingdom)

^b UNIVERSITY OF WARWICK   (United Kingdom)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 77951896899     PISSN: 0306686X     EISSN: 14685957     Source Type: Journal    
DOI: 10.1111/j.0306-686X.2004.00556.x     Document Type: Article

References (63)

1. Aggarwal, R. and D. Schirm (1992), 'Balance of Trade Announcements and Asset Prices: Influence on Equity Prices, Exchange Rates and Interest Rates, ' Journal of International Money and Finance, Vol. 11, pp. 80-95.
2. Almeida, A., C. Goodhart and R. Payne (1998), 'The Effects of Macroeconomic News on High Frequency Exchange Rate Behaviour, ' Journal of Financial and Quantitative Analysis, Vol. 33, pp. 383-408.
3. Andersen, T.G. and T. Bollerslev (1997), 'Intraday Periodicity and Volatility Persistence in Financial Markets, ' Journal of Empirical Finance, Vol. 4, pp. 115-58.
4. -(1998), 'DM-Volatility: Intraday Activity Patterns, Macroeconomic Announcements, and Longer Dependencies, ' Journal of Finance, Vol. 53, pp. 219-65.
5. Baillie, R.T. and T. Bollerslev (1989), 'The Message in Daily Exchange Rates: A Conditional Variance Tail, ' Journal of Business and Economic Statistics, Vol. 7, pp. 297-305.
6. -(1990), 'AMultivariate Generalized ARCH Approach to Modelling Risk Premia in Forward Exchange Rate Markets, ' Journal of International Money and Finance, Vol. 9, pp. 309-24.
7. -(1991), 'Intraday and Inter-market Volatility in Foreign Exchange Rates, ' Review of Economic Studies, Vol. 58, pp. 565-85.
8. Blair, B.J., S. Poon and S.J. Taylor (2001), 'Modelling S&P100 Volatility: The Information Content of Stock Returns, ' Journal of Banking and Finance, Vol. 25, pp. 1665-79.
9. Boothe, P. and D. Glassman (1987), 'The Statistical Distribution of Foreign Exchange Rates: Empirical Evidence and Economic Implications, ' Journal of International Economics, Vol. 22, pp. 297-319.
10. Breidt, F.J. and A.L. Carriquiry (1996), 'Improved Quasi-Maximum Likelihood Estimation for Stochastic Volatility Models, ' in J.C. Lee and A. Zellner (eds.), Modelling and Predictions: Honoring Seymour Geisser (New York: Springer-Verlag), pp. 228-47.
11. Chesney, M. and L. Scott (1989), 'Pricing European Currency Options: A Comparison of the Modified Black-Scholes Model and a Random Variance Model, ' Journal of Financial and Quantitative Analysis, Vol. 24, pp. 267-84.
12. Clarida, R.H., L. Sarno, M.P. Taylor and G. Valente (2003), 'The Out-of-Sample Success of Term Structure Models as Exchange Rate Predictors: One Step Beyond, ' Journal of International Economics, Vol. 60, pp. 61-83.
13. Clark, P.K. (1973), 'A Subordinated Stochastic Process Model with Finite Variance for Speculative Prices, ' Econometrica, Vol. 41, pp. 135-55.
14. Dacorogna, M., U. Mueller, R. Nagler, R. Olsen and O. Pictet (1993), 'A Geographical Model for the Daily and Weekly Seasonal Volatility in the Foreign Exchange Market, ' Journal of International Money and Finance, Vol. 12, pp. 413-38.
15. Diebold, F.X. and M. Nerlove (1989), 'The Dynamics of Exchange Rate Volatility: A Multivariate Latent Factor GARCH Model, ' Journal of Applied Econometrics, Vol. 4, pp. 1-21.
16. Domowitz, I. and C.S. Hakkio (1985), 'Conditional Variance and the Risk Premium in the Foreign Exchange Market, ' Journal of International Economics, Vol. 19, pp. 47-66.
17. Duffie, D. and K.J. Singleton (1993), 'Simulated Moments Estimation of Markov Models of Asset Prices, ' Econometrica, Vol. 61, pp. 929-52.
18. Engle, R.F. (1982), 'Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of the UK Inflation, ' Econometrica, Vol. 50, pp. 987-1007.
19. -and T. Bollerslev (1986), 'Modelling the Persistence of Conditional Variances, ' Econometric Reviews, Vol. 5, pp. 1-50.
20. Engle, R.F., T. Ito and W.-L. Lin (1990), 'Meteor Showers or Heat Waves? Heteroscedastic Intra-daily Volatility in Foreign Exchange Markets, ' Econometrica, Vol. 5, pp. 525-42.
21. Fama, E.F. (1965), 'The Behaviour of Stock Market Prices, ' Journal of Business, Vol. 38, pp. 34-105.
22. Fraser, P. and N. Groenewold (2000), 'The Effect of Exchange Rate Shocks on the Volatility of Australian Sector Excess Returns: A Note, ' Applied Economics Letters, Vol. 7, pp. 77-81.
23. Fraser, P. and M.P. Taylor (1990), 'Modelling Risk in the Interwar Foreign Exchange Market, ' Scottish Journal of Political Economy, Vol. 37, pp. 241-58.
24. Fuller, W.A. (1996), Introduction to Statistical Time Series (2nd ed., New York: John Wiley and Sons).
25. Ghysels, E., A.C. Harvey and E. Renault (1996), 'Stochastic Volatility, ' in G.S.Maddala and C.S. Rao (eds.), Handbook of Statistics, Vol. 14(Amsterdam: Elsevier, Science), pp. 119-91.
26. Guillaume, D.M., M. Dacorogna, R.R. Dave, U. Mueller, R. Olsen and O. Pictet (1995), 'From the Bird's Eye to the Microscope: A Survey of New Stylized Facts of the Intradaily Foreign Exchange Markets, ' Finance and Stochastics, Vol. 1, pp. 95-120.
27. Hakkio, C.S. and D. Pearce (1985), 'The Reaction of Exchange Rates to News, ' Economic Inquiry, Vol. 23, pp. 621-35.
28. Hall, A., V. Martin and A. Pagan (1996), 'Modeling the Term Structure, ' in G. Maddala and C. Rao (eds.), Statistical Methods of Finance; Handbook of Statistics series, Vol. 14 (Amsterdam; New York and Oxford: Elsevier, North-Holland), pp. 91-118.
29. Hardouvelis, G. (1988), 'Economic News, Exchange Rates and Interest Rates, ' Journal of International Money and Finance, Vol. 7, pp. 23-35.
30. Harvey, A.C. (1989), Forecasting Structural Time Series Models and the Kalman Filter (Cambridge: Cambridge University Press).
31. -(2002), 'A Unified Approach to Testing for Stationarity and Unit Roots' (mimeo).
32. -and N. Shephard (1996), 'Estimation of an Asymmetric Stochastic Volatility Model for Asset Returns, ' Journal of Business and Economic Statistics, Vol. 14, pp. 429-34.
33. --E. Ruiz and N. Shephard (1994), 'Multivariate Stochastic Variance Models, ' Review of Economic Studies, Vol. 61, pp. 247-64.
34. Hogan, K. and M. Melvin (1994), 'Sources of Meteor Showers and Heat Waves in the Foreign Exchange Market, ' Journal of International Economics, Vol. 37, pp. 239-47.
35. -and D. Roberts (1991), 'Trade Balance News and Exchange Rates: Is There a Policy Signal?, ' Journal of International Money and Finance, Vol. 10, pp. 90-99.
36. Hsieh, D.A. (1988), 'The Statistical Properties of Daily Foreign Exchange Rates: 1974-83, ' Journal of International Economics, Vol. 24, pp. 129-45.
37. -(1989a), 'Testing for Nonlinear Dependence in Daily Foreign Exchange Rates, ' Journal of Business, Vol. 62, pp. 339-68.
38. -(1989b), 'Modelling Heteroscedasticity in Daily Foreign Exchange Rates, ' Journal of Business and Economic Statistics, Vol. 7, pp. 307-17.
39. Hull, J. and A. White (1987), 'Hedging the Risks From Writing Foreign Currency Options, ' Journal of International Money and Finance, Vol. 6, pp. 131-52.
40. Ito, T. and V.V. Roley (1987), 'News from the U.S. and Japan: Which Moves the Yen/Dollar Exchange Rate?, ' Journal of Monetary Economics, Vol. 19, pp. 255-77.
41. Johansen, S. (1988), 'Statistical Analysis of Cointegration Vectors, ' Journal of Economic Dynamics and Control, Vol. 12, pp. 231-54.
42. -(1991), 'Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models, ' Econometrica, Vol. 59, pp. 1551-80.
43. Johansen, S. and D. Shanno (1987), 'Option Pricing When the Variance is Changing, ' Journal of Financial and Quantitative Analysis, Vol. 22, pp. 143-51.
44. Kanas, A. (1998), 'Volatility Spillovers Across Equity Markets: European Evidence, ' Applied Financial Economics, Vol. 8, pp. 245-56.
45. Kasa, K. (1992), 'Common Stochastic Trends in International Stock Markets, ' Journal of Monetary Economics, Vol. 29, pp. 95-124.
46. Kim, S., N. Shephard and S. Chib (1998), 'Stochastic Volatility: Likelihood Inference and Comparison with ARCH Models, ' Review of Economic Studies, Vol. 65, pp. 361-93.
47. Lee, J. (2000), 'Change in Volatility in theWon/U.S. Dollar Daily Exchange Rate: Stochastic Volatility Model, ' Asia Pacific Financial Markets, Vol. 7, pp. 83-96.
48. Lyons, R.K. (2001), The Microstructure Approach to Exchange Rates (Cambridge, Mass.: MIT Press).
49. Mahieu, R.J. and P.C. Schotman (1994), 'Neglected Common Factors in Exchange Rate Volatility, ' Journal of Empirical Finance, Vol. 1, pp. 279-311.
50. -(1998), 'An Empirical Application of Stochastic Volatility Models, ' Journal of Applied Econometrics, pp. 333-59.
51. Mandelbrot, B. (1963a), 'New Methods in Statistical Economics, ' Journal of Political Economy, Vol. 71, pp. 421-40.
52. -(1963b), 'The Variation of Certain Speculative Prices, ' Journal of Business, Vol. 36, pp. 394-419.
53. Melino, A. and S.M. Turnbull (1990), 'Pricing Foreign Currency Option with Stochastic Volatility, ' Journal of Econometrics, Vol. 45, pp. 239-65.
54. Melvin, M. and B. Peiers (1998), 'Twice a Day or Continuously? Observation Frequency and Inference on Foreign Exchange Volatility Persistence, ' Atlantic Economic Journal, Vol. 26, pp. 44-53.
55. -(2003), 'The Global Transmission of Volatility in the Foreign Exchange Market, ' Review of Economics and Statistics, Vol. 85, pp. 670-79.
56. Pantula, S.G. (1991), 'Asymptotic Distributions of Unit-Root Tests when the Process is Nearly Stationary, ' Journal of Business and Economic Statistics, Vol. 9, pp. 63-71.
57. Sarno, L. and M.P. Taylor (2001a), The Microstructure of the Foreign Exchange Market, Princeton Studies in International Economics, 89 (International Economics Section, Princeton University).
58. -(2001b), 'Official Intervention in the Foreign Exchange Market: Is It Effective and, If So, How Does It Work?, ' Journal of Economic Literature, Vol. 39, pp. 839-68.
59. Schwert, G.W. (1989), 'Tests for Unit Roots: A Monte Carlo Investigation, ' Journal of Business and Economic Statistics, Vol. 7, pp. 147-60.
60. Tauchen, G.E. and M. Pitts (1983), 'The Price Variability-Volume Relationship on Speculative Markets, ' Econometrica, Vol. 51, pp. 485-505.
61. Taylor, S.J. (1986), Modelling Financial Time Series (New York: Wiley and Sons).
62. -(1994), 'Modelling Stochastic Volatility: A Review and Comparative Study, ' Mathematical Finance, Vol. 4, pp. 183-204.
63. -and X. Xu (1997), 'The Incremental Volatility Information in One Million Foreign Exchange Quotations, ' Journal of Empirical Finance, Vol. 4, pp. 317-40.