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Public Information Releases, Private Information Arrival, and Volatility in the Foreign Exchange Market

Posted: 28 Mar 2003 Last revised: 27 Aug 2014

Ramon P. DeGennaro

University of Tennessee, Knoxville - Department of Finance

Ronald E. Shrieves

University of Tennessee, Knoxville - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: December 1997

Abstract

This paper estimates the impact of market activity and news on the volatility of returns in the exchange market for Japanese Yen and US dollars. We examine the effects of news on volatility before, during and after news arrival, using three categories of news. Market activity is proxied by quote arrival, separated into a predictable seasonal component and an unexpected component. Results indicate that both components of market activity, as well as news releases, affect volatility levels. We conclude that both private information and news effects are important determinants of exchange rate volatility. Our finding that unexpected quote arrival positively impacts foreign exchange rate volatility is consistent with the interpretation that unexpected quote arrival serves as a measure of informed trading. Corroborating this interpretation is regression analysis, which indicates that spreads increase in the surprise component of the quote arrival rate, but not in the expected component. The estimated impact of a unit increase in unexpected quote arrival and the range of values observed for this variable imply an important volatility conditioning role for informed trading.

Keywords: volatility, foreign exchange, information, news

JEL Classification: A1, C5, F3, G1, G2, M2

Suggested Citation

DeGennaro, Ramon P. and Shrieves, Ronald E., Public Information Releases, Private Information Arrival, and Volatility in the Foreign Exchange Market (December 1997). Journal of Empirical Finance Volume 4, Issue 4, December 1997, Pages 295–315. Available at SSRN: https://ssrn.com/abstract=379080 or http://dx.doi.org/10.2139/ssrn.379080

Ramon P. DeGennaro (Contact Author)

University of Tennessee, Knoxville - Department of Finance ( email )

423 Stokely Management Center
Knoxville, TN 37996
United States
865-974-1726 (Phone)
865-974-1716 (Fax)

Ronald E. Shrieves

University of Tennessee, Knoxville - Department of Finance ( email )

Knoxville, TN 37996
United States

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