Exchange Rate Volatility, Macro Announcements and the Choice of Intraday Seasonality Filtering Method

36 Pages Posted: 28 Nov 2007

Date Written: 2007

Abstract

Filtering intraday seasonality in volatility is crucial for using high frequency data in econometric analysis. This paper studies the effects of filtering on statistical inference concerning the impact of news on exchange rate volatility. The properties of different methods are studied using a 5-minute frequency USD/EUR data set and simulated returns. The simulation results suggest that all the methods tend to produce downward-biased estimates of news coefficients, some more than others. The study supports the Flexible Fourier Form method as the best for seasonality filtering.

Keywords: high-frequency, volatility, macro announcements, seasonality

JEL Classification: C22, C49, C52, E44

Suggested Citation

Laakkonen, Helinä, Exchange Rate Volatility, Macro Announcements and the Choice of Intraday Seasonality Filtering Method (2007). Bank of Finland Research Discussion Paper No. 23/2007, Available at SSRN: https://ssrn.com/abstract=1032876 or http://dx.doi.org/10.2139/ssrn.1032876

Helinä Laakkonen (Contact Author)

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

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