Modelling Volatility Transmission in the Forex Market Using High-Frequency Data

25 Pages Posted: 19 Jan 2018

See all articles by Rim Lamouchi

Rim Lamouchi

GEF-2A LAb, Institut Supérieur de Gestion de Tunis, University of Tunis

Ibrahim Fatnassi

Tunis Business School, University of Tunis ; GEF-2A LAb, Institut Supérieur de Gestion de Tunis, University of Tunis

Russell Davidson

McGill University; AMSE-GREQAM

Ben Maatoug Abderrazak

University of Bisha; University of Tunis - Higher Institute of Management, GEF-2A Lab

Date Written: October 2, 2017

Abstract

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

Lamouchi, Rim and Fatnassi, Ibrahim and Davidson, Russell and abderrazak, ben maatoug, Modelling Volatility Transmission in the Forex Market Using High-Frequency Data (October 2, 2017). Available at SSRN: https://ssrn.com/abstract=3099121 or http://dx.doi.org/10.2139/ssrn.3099121

Rim Lamouchi

GEF-2A LAb, Institut Supérieur de Gestion de Tunis, University of Tunis ( email )

41 Rue de la Liberte, Cite Bouchoucha
Bardo, Tunis 2000
Tunisia

Ibrahim Fatnassi (Contact Author)

Tunis Business School, University of Tunis ( email )

El Mourouj 2074
Kassaa, 2059
Tunisia

GEF-2A LAb, Institut Supérieur de Gestion de Tunis, University of Tunis ( email )

41, Avenue de Liberté, Cité Bouchoucha, Le Bardo
Bardo, Tunis 2000
Tunisia

Russell Davidson

McGill University ( email )

855 Sherbrooke Street West
Department of Economics
Montreal, Quebec H3A 2T7 H3A 2T7
Canada
514-398-4400 x 09008 (Phone)

AMSE-GREQAM ( email )

GREQAM
Centre de la Vieille Charité
Marseille, 13002
France
+33 491140740 (Phone)

Ben maatoug Abderrazak

University of Bisha ( email )

Bisha -KSU
Alriadh Street
Bisha
Saudi Arabia

University of Tunis - Higher Institute of Management, GEF-2A Lab ( email )

Tunis
Tunisia

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