Modelling Volatility Transmission in the Forex Market Using High-Frequency Data
25 Pages Posted: 19 Jan 2018
Date Written: October 2, 2017
This paper examines the dynamics of volatility transmission in the forex market using high-frequency data for the EUR/USD, EUR/JPY, EUR/CHF, EUR/GBP and EUR/AUD exchange rates from January 2004 to October 2014. We apply a multivariate HAR model in which the daily realized volatility depends on both its own lags and the lagged realized volatilities of the other exchange rates. Furthermore, this model is able to identify short-term, medium-term, and long-term transmission effects. We also find evidence of statistically significant volatility transmission between exchange rates in the forex market, especially during periods marked by market uncertainty.
Keywords: Foreign exchange markets, Realized volatility, High-frequency data, Volatility transmission, HAR model, DCC-GARCH
JEL Classification: C5, F31, G15
Suggested Citation: Suggested Citation