Do Trading Hours Affect Volatility Links in the Foreign Exchange Market?

Posted: 5 May 2012  

Sirimon Treepongkaruna

The University of Western Australia; Financial Research Network (FIRN)

Robert D. Brooks

Monash University; Financial Research Network (FIRN)

Stephen Gray

University of Queensland - Business School; Duke University - Fuqua School of Business; Financial Research Network (FIRN)

Date Written: April 4, 2012

Abstract

This paper explores whether volatility linkages exist at the intra-daily frequency in the foreign exchange market, and whether market trading hours affect volatility transmission. To answer these questions, we apply the Fleming, Kirby and Ostdiek model (1998) to 21 currency pairs using hourly data and allowing specific consideration to be given to the role of which market is open in driving volatility linkages. Our findings indicate that hourly volatility is less persistent than daily volatility. We also find that market trading hours play a different role in driving volatility linkages for major and non-major currencies. For major currency pairs, we find that simultaneous trading hours are not critical for the processing of information flow. However, for the other currency pairings volatility transmission is affected by which markets are open.

Keywords: common information, foreign exchange market, stochastic volatility, trading hours, volatility spillover

Suggested Citation

Treepongkaruna, Sirimon and Brooks, Robert Darren and Gray, Stephen, Do Trading Hours Affect Volatility Links in the Foreign Exchange Market? (April 4, 2012). Australian Journal of Management, Vol. 37, No. 1, 2012. Available at SSRN: https://ssrn.com/abstract=2050440

Sirimon Treepongkaruna

The University of Western Australia ( email )

35 Stirling Highway
Crawley, Western Australia 6009
Australia
+61864887853 (Phone)
+61864881086 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Robert Darren Brooks

Monash University ( email )

Wellington Road
Clayton, Victoria 3168
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Stephen Gray (Contact Author)

University of Queensland - Business School ( email )

University of Queensland
Brisbane, Queensland 4072
Australia

Duke University - Fuqua School of Business

Box 90120
Durham, NC 27708-0120
United States

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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