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Time-of-Day Pattern and Long Memory Volatility in High Frequency Foreign Exchange Rates across Trading Time Zones

한영욱
보험연구원 (Korea Insurance Research Institute)|2020.05|보험금융연구 (Journal of Insurance and Finance)|제31권 제2호|pp. 59-94|DOI 10.23842/jif.2020.31.2.003

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키워드

Long memory volatilityFIGARCH 모형FIGARCH modelHigh frequency foreign exchange ratesTime-of-day patternLocal Whittle method고빈도 환율일중 시간대 패턴장기기억 변동성Local Whittle 추정
주제분류경영학

초록

By using the 1-hour EUR/USD, JPY/EUR and JPY/USD high frequency exchange rates, this paper presents two important features of the high frequency exchange rates across different trading time zones in FX markets: time-of-day pattern and long memory volatility. First, this paper finds statistical evidence of the time-of-day pattern in the 4-hour period returns of the high frequency exchange rates across the time zones through the significant tendency for the currency to depreciate (appreciate) during domestic (foreign) trading hours across the time zones. Then, this paper employs the FIGARCH model and the Local Whittle method to estimate the long memory volatility of the 4-hour period returns and shows that the long memory volatilities of the 4-hour period returns appear to be different across the time zones and only market specific. Also, this study presents that the time-of-pattern and the long memory volatility in the 4-hour period returns across the time zones could be explained quite well by the theories of the asymmetric information and the liquidity effect in FX markets.

Abstract

By using the 1-hour EUR/USD, JPY/EUR and JPY/USD high frequency exchange rates, this paper presents two important features of the high frequency exchange rates across different trading time zones in FX markets: time-of-day pattern and long memory volatility. First, this paper finds statistical evidence of the time-of-day pattern in the 4-hour period returns of the high frequency exchange rates across the time zones through the significant tendency for the currency to depreciate (appreciate) during domestic (foreign) trading hours across the time zones. Then, this paper employs the FIGARCH model and the Local Whittle method to estimate the long memory volatility of the 4-hour period returns and shows that the long memory volatilities of the 4-hour period returns appear to be different across the time zones and only market specific. Also, this study presents that the time-of-pattern and the long memory volatility in the 4-hour period returns across the time zones could be explained quite well by the theories of the asymmetric information and the liquidity effect in FX markets.

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