Time-Varying Volatility in the Foreign Exchange Market: New Evidence on its Persistence and on Currency Spillovers

35 Pages Posted: 12 Jul 2004

See all articles by Ibrahim Chowdhury

Ibrahim Chowdhury

University of Oxford

Lucio Sarno

City University London - Sir John Cass Business School; Centre for Economic Policy Research (CEPR)

Abstract

We examine empirically the volatility of four major US dollar spot exchange rates using intraday data over 40 trading days. Using multivariate stochastic volatility models, we investigate the degree of persistence of exchange rate volatility for data sampled at different frequencies and the role of volatility spillovers across exchange rates. We find that the noise component of volatility 'aggregates out' very quickly, being dominated by the more persistent component of volatility for data sampled at 15-minute or lower frequencies. Our results also suggest that exchange rate volatility is very persistent and that cross-currency spillovers are small.

Suggested Citation

Chowdhury, Ibrahim and Sarno, Lucio, Time-Varying Volatility in the Foreign Exchange Market: New Evidence on its Persistence and on Currency Spillovers. Journal of Business Finance & Accounting, Vol. 31, No. 5-6, pp. 759-793, June 2004. Available at SSRN: https://ssrn.com/abstract=563435

Ibrahim Chowdhury (Contact Author)

University of Oxford ( email )

Oxford
United Kingdom
+44 1865 282 892 (Phone)

Lucio Sarno

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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