The Review of Economics and Statistics Vol. 85 No. 3 2003
The Global Transmission of Volatility in the Foreign Exchange Market
Abstract
Volatility spillovers of the DM/$ and ¥/$ exchange rate across regional markets are examined using the integrated volatility of high-frequency data. An analysis of quoting patterns reveals five distinct regions: Asia, Asia-Europe overlap, Europe, Europe-America overlap, and America. After reviewing theoretical foundations for persistence of volatility in dealership markets, regional volatility models are constructed where volatility in one region is a function of yesterday's volatility in that region (“heat-wave effect”) and volatility in other regions (“meteor-shower effect”). Evidence of statistically significant effects is found for both own-region and interregional spillovers, but the economic significance of own-region spillovers indicates that heat waves are more important than meteor showers.
- DOI
- 10.1162/003465303322369803
- Volume
- 85
- Issue
- 3
- Pages
- 670-679
- Language
- en
- Sources
- openalex crossref