Macroeconomic News Surprises and Volatility Spillover in the Foreign Exchange Markets

36 Pages Posted: 29 Jan 2018

See all articles by Walid Ben Omrane

Walid Ben Omrane

Brock University - Department of Finance, Operations and Information Systems (FOIS)

Christian Hafner

Catholic University of Louvain (UCL) - School of Statistics; Tinbergen Institute

Date Written: October 3, 2011

Abstract

This paper addresses the central open issue in exchange rate economics: the link between exchange rate volatility and economic fundamentals. In the framework of a multivariate volatility model that allows for volatility spillover, we develop a new impulse response analysis to estimate and decompose the simultaneous effect of macroeconomic news surprises on the foreign exchange volatility. We show that news announcement effects include two components; a direct and an indirect effect induced by volatility spillover. We show that more than 50% of the total accumulated news effect on the Pound and the Yen are due to volatility transmission from the two major currencies and mainly from the Euro.

Keywords: Foreign exchange markets, Volatility spillover, News surprises, Impulse response Analysis, High frequency data

JEL Classification: F31, F4, C32, C5

Suggested Citation

Ben Omrane, Walid and Hafner, Christian, Macroeconomic News Surprises and Volatility Spillover in the Foreign Exchange Markets (October 3, 2011). Available at SSRN: https://ssrn.com/abstract=2014345 or http://dx.doi.org/10.2139/ssrn.2014345

Walid Ben Omrane (Contact Author)

Brock University - Department of Finance, Operations and Information Systems (FOIS) ( email )

Ontario, L2S 3A1
Canada

Christian Hafner

Catholic University of Louvain (UCL) - School of Statistics ( email )

Voie du Roman Pay
34 B-1348 Louvain-La-Neuve, 1348
Belgium

Tinbergen Institute ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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