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http://ssrn.com/abstract=428353
 
 

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Meteor Showers or Heat Waves? Heteroskedastic Intra-Daily Volatility in the Foreign Exchange Market


Robert F. Engle


New York University - Leonard N. Stern School of Business - Department of Economics; New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

Takatoshi Ito


University of Tokyo - Faculty of Economics; National Bureau of Economic Research (NBER); Ministry of Finance, Tokyo

Wenling Lin


Office of Comptroller of Currency

June 1988

NBER Working Paper No. w2609

Abstract:     
This paper defines and tests a form of market efficiency called market dexterity which requires that asset prices adjust instantaneously and completely in response to new information. Examining the behavior of the yen/dollar exchange rate while each of the major markets are open it is possible to test for informational effects from one market to the next. Assuming that news has only country specific autocorrelation such as a heat wave. any intra-daily volatility spillovers (meteor showers) become evidence against market dexterity. ARCII models are employed to model heteroskedasticity across intra-daily market segments. Statistical tests lead to the rejection of the heat wave and therefore the market dexterity hypothesis. Using a volatility type of vector autoregression we examine the impact of news in one market on the time path of volatility in other markets.

Number of Pages in PDF File: 28

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Date posted: June 18, 2004  

Suggested Citation

Engle, Robert F. and Ito, Takatoshi and Lin, Wenling, Meteor Showers or Heat Waves? Heteroskedastic Intra-Daily Volatility in the Foreign Exchange Market (June 1988). NBER Working Paper No. w2609. Available at SSRN: http://ssrn.com/abstract=428353

Contact Information

Robert F. Engle (Contact Author)
New York University - Leonard N. Stern School of Business - Department of Economics ( email )
269 Mercer Street
New York, NY 10003
United States
New York University (NYU) - Department of Finance
Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Takatoshi Ito
University of Tokyo - Faculty of Economics ( email )
7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033
Japan
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
81-425-80-8356 (Phone)
81-425-80-8333 (Fax)
Ministry of Finance, Tokyo ( email )
3-1-1, Kasumigaseki, Chiyoda-ku
100-8940 Tokyo
Japan
+81-3-3581-4720 (Phone)
+81-3-5251-2144 (Fax)
Wenling Lin
Office of Comptroller of Currency ( email )
400 7th Street SW
Washington, DC 20219
United States
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