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Meteor Showers or Heat Waves? Heteroskedastic Intra-Daily Volatility in the Foreign Exchange Market
Open accessAbstract
This paper defines and tests a form of market efficiency called market dexterity which requires that asset prices adjust instantaneously and completely in response to new information. Examining the behavior of the yen/dollar exchange rate while each of the major markets are open it is possible to test for informational effects from one market to the next. Assuming that news has only country specific autocorrelation such as a heat wave. any intra-daily volatility spillovers (meteor showers) become evidence against market dexterity. ARCH models are employed to model heteroskedasticity across intra-daily market segments. Statistical tests lead to the rejection of the heat wave and therefore the market dexterity hypothesis. Using a volatility type of vector autoregression we examine the impact of news in one market on the time path of volatility in other markets.
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Citations
Cited by
Correlations in price changes and volatility across international stock markets
Hamao, Y., Masulis, R. W., & Ng, V. (1990) · Review of Financial Studies · doi:10.1093/rfs/3.2.281 · Cited by 1,926
The econometrics of financial markets
Pagan, A. (1996) · Journal of Empirical Finance · doi:10.1016/0927-5398(95)00020-8 · Cited by 873
Do Bulls and Bears Move Across Borders? International Transmission of Stock Returns and Volatility
Lin, W.-L., Engle, R. F., & Ito, T. (1994) · Review of Financial Studies · doi:10.1093/rfs/7.3.507 · Cited by 873
Self-citationA geographical model for the daily and weekly seasonal volatility in the foreign exchange market
Dacorogna, M. M., Müller, U. A., Nagler, R. J., Olsen, R. B., & Pictet, O. V. (1993) · Journal of International Money and Finance · doi:10.1016/0261-5606(93)90004-u · Cited by 608
Inequality Constraints in the Univariate GARCH Model
Nelson, D. B., & Cao, C. Q. (1992) · Journal of Business & Economic Statistics · doi:10.1080/07350015.1992.10509902 · Cited by 608
Metadata
- Authors
- Engle, R. F., Ito, T., & Lin, W.-L.
- Venue
- Econometrica
- Publisher
- JSTOR
- Published
- 1990-05
- Volume
- 58
- Issue
- 3
- Pages
- 525
- ISSN
- 0012-9682 (ISSN-L)
- OpenAlex
- W1567579011
- Cited by
- 840
- References
- 0
- FWCI
- 16.68
- Type
- journal article
- Language
- en
- Open access
- green
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- Engle, R. F., Ito, T., & Lin, W.-L. (1990). Meteor Showers or Heat Waves? Heteroskedastic Intra-Daily Volatility in the Foreign Exchange Market. Econometrica. https://doi.org/10.2307/2938189
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
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