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Public Information Releases, Private Information Arrival, and Volatility in the Foreign Exchange MarketRamon P. DeGennaroUniversity of Tennessee, Knoxville - Department of Finance Ronald E. ShrievesUniversity of Tennessee, Knoxville - Department of Finance High Frequency Data in Finance 1, Olsen & Associates, Conference Proceedings, February 1995 Abstract: This paper uses a GARCH framework to estimate the impact of a class of information events on volatility of returns in the foreign exchange market. An information event is defined as news arrival that separates time intervals which differ in the degree and pattern of informational asymmetry, thus altering the potential for informed trading, hence volatility. Information events may also result in opportunistic trades by investors with superior access to the market. Results reflect a significant decrease in volatility during and after the hour of news arrival, even after controlling for the influence of quote activity levels. There is also some evidence of increases in volatility in the hour prior to news arrival. The findings thus corroborate the role of informed trading in the price formation process, as well as provide evidence of a volatility moderating impact of news arrival.
Number of Pages in PDF File: 29 Keywords: volatility, foreign exchange, information, news JEL Classification: A1, C5, F3, G1, G2, M2 Accepted Paper SeriesDate posted: March 28, 2003Suggested CitationContact Information
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