Capital Flows and Japanese Asset Volatility

24 Pages Posted: 23 Aug 2012

See all articles by Christopher J. Neely

Christopher J. Neely

Federal Reserve Bank of St. Louis - Research Division

Brett Fawley

Federal Reserve Bank of Saint Louis

Multiple version iconThere are 2 versions of this paper

Date Written: August 2012

Abstract

Characterizing asset price volatility is an important goal for financial economists. The literature has shown that variables that proxy for the information arrival process can help explain and/or forecast volatility. Unfortunately, however, obtaining good measures of volume and/or order flow is expensive or difficult in decentralized markets such as foreign exchange. We investigate the extent that Japanese capital flows, which are released weekly, reflect information arrival that improves foreign exchange and equity volatility forecasts. We find that capital flows can help explain transitory shocks to generalized autoregressive conditionally heteroskedastic volatility.

Suggested Citation

Neely, Christopher J. and Fawley, Brett, Capital Flows and Japanese Asset Volatility (August 2012). Pacific Economic Review, Vol. 17, Issue 3, pp. 391-414, 2012, Available at SSRN: https://ssrn.com/abstract=2134750 or http://dx.doi.org/10.1111/j.1468-0106.2012.00590.x

Christopher J. Neely (Contact Author)

Federal Reserve Bank of St. Louis - Research Division ( email )

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HOME PAGE: http://www.stls.frb.org/research/econ/cneely/

Brett Fawley

Federal Reserve Bank of Saint Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

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