Asymmetric volatility in the foreign exchange markets

Wang, J; Yang, M

Asymmetric volatility in the foreign exchange markets

Wang, J Yang, M

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Publication Type:: Journal Article
Citation:: Journal of International Financial Markets, Institutions and Money, 2009, 19 (4), pp. 597 - 615
Issue Date:: 2009-10-01

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Field	Value	Language
dc.contributor.author	Wang, J	en_US
dc.contributor.author	Yang, M	en_US
dc.date.issued	2009-10-01	en_US
dc.identifier.citation	Journal of International Financial Markets, Institutions and Money, 2009, 19 (4), pp. 597 - 615	en_US
dc.identifier.issn	1042-4431	en_US
dc.identifier.uri	http://hdl.handle.net/10453/15863
dc.description.abstract	We examine the presence or absence of asymmetric volatility in the exchange rates of Australian dollar (AUD), Euro (EUR), British pound (GBP) and Japanese yen (JPY), all against US dollar. Our investigation is based on a variant of the heterogeneous autoregressive realized volatility model, using daily realized variance and return series from 1996 to 2004. We find that a depreciation against USD leads to significantly greater volatility than an appreciation for AUD and GBP, whereas the opposite is true for JPY. Relative to volatility on days following a positive one-standard-deviation return, volatility on days following a negative one-standard-deviation return is higher by 6.6% for AUD, 6.1% for GBP, and 21.2% for JPY. The realized volatility of EUR appears to be symmetric. These results are robust to the removal of jump component from realized volatility and the sub-samplings defined by structural-changes. The asymmetry in AUD, GBP and JPY appears to be embedded in the continuous component of realized volatility rather than the jump component. Crown Copyright © 2008.	en_US
dc.relation.ispartof	Journal of International Financial Markets, Institutions and Money	en_US
dc.relation.isbasedon	10.1016/j.intfin.2008.10.001	en_US
dc.subject.classification	Finance	en_US
dc.title	Asymmetric volatility in the foreign exchange markets	en_US
dc.type	Journal Article
utslib.citation.volume	4	en_US
utslib.citation.volume	19	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
utslib.for	1402 Applied Economics	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Finance Discipline
utslib.copyright.status	closed_access
pubs.issue	4	en_US
pubs.publication-status	Published	en_US
pubs.volume	19	en_US

Abstract:

We examine the presence or absence of asymmetric volatility in the exchange rates of Australian dollar (AUD), Euro (EUR), British pound (GBP) and Japanese yen (JPY), all against US dollar. Our investigation is based on a variant of the heterogeneous autoregressive realized volatility model, using daily realized variance and return series from 1996 to 2004. We find that a depreciation against USD leads to significantly greater volatility than an appreciation for AUD and GBP, whereas the opposite is true for JPY. Relative to volatility on days following a positive one-standard-deviation return, volatility on days following a negative one-standard-deviation return is higher by 6.6% for AUD, 6.1% for GBP, and 21.2% for JPY. The realized volatility of EUR appears to be symmetric. These results are robust to the removal of jump component from realized volatility and the sub-samplings defined by structural-changes. The asymmetry in AUD, GBP and JPY appears to be embedded in the continuous component of realized volatility rather than the jump component. Crown Copyright © 2008.

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http://hdl.handle.net/10453/15863