Decomposing intraday dependence in currency markets: Evidence from the AUD/USD spot market

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Journal Article
Physica A: Statistical Mechanics and its Applications, 2005, 352 (2-4), pp. 558 - 572
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The local Hurst exponent, a measure employed to detect the presence of dependence in a time series, may also be used to investigate the source of intraday variation observed in the returns in foreign exchange markets. Given that changes in the local Hurst exponent may be due to either a time-varying range, or standard deviation, or both of these simultaneously, values for the range, standard deviation and local Hurst exponent are recorded and analyzed separately. To illustrate this approach, a high-frequency data set of the spot Australian dollar/US dollar provides evidence of the returns distribution across the 24-hour trading 'day', with time-varying dependence and volatility clearly aligning with the opening and closing of markets. This variation is attributed to the effects of liquidity and the price-discovery actions of dealers. © 2005 Elsevier B.V. All rights reserved.
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