This paper examines the dynamics of
volatility transmission in the forex market using high-frequency data for five
exchange rates (EUR/USD, EUR/JPY, EUR/CHF, EUR/GBP and EUR/AUD) from January
2004 to October 2014. We apply a multivariate HAR model in which the daily
realized volatility of a given exchange rate 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.
JEL classification numbers: C5, F31, G15.
Keywords: Foreign exchange markets, Realized volatility,
High-frequency data, Volatility transmission, HAR model, DCC-GARCH.