Asymmetric Linkages between High-Frequency Dem/USD and GBP/USD Exchange Rates
42 Pages Posted: 28 Nov 2007
This paper investigates whether global imbalance in the size of the exchange rates order flow introduces asymmetric linkages. In particular, we study the high frequency volatility spillover between DEM/USD and GBP/USD using multivariate GARCH models over a two-year sample period of 1997 to 1998. The results show significant volatility spillover effects from DEM/USD to GBP/USD, while the feedback from the GBP/USD to DEM/USD is relatively small. We hypothesize that the different sizes of global order flow generated by these two exchange rates may be a major factor that contributes to such asymmetric linkages.
Keywords: Exchange rate volatility linkages, High Frequency data, Exchange rates
JEL Classification: F31
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