Journal of Applied Finance & Banking

Heterogeneous Behavior and Volatility Transmission in the Forex Market using High-Frequency Data

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  • Abstract

     

    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.