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Publications
We analyze and assess the impact of macroeconomic announcements on the discontinuities in many assets: stock index futures, bond futures, exchange rates, and gold. We use bi-power variation and the recently proposed non-parametric techniques of Lee and Mykland (2006) to extract jumps. Beyond characterizing the jump and cojump dynamics of many assets, we analyze how news arrival causes jumps and cojumps and estimate limited-dependent-variable models to quantify the impact of surprises. We confirm previous findings that some surprises create jumps. However, many announcements do not create jumps and many jumps are not related to announcements. The propensity of surprises to create jumps differs across asset classes, i.e., exchange rates, bonds, stock index. Payroll announcements are most important on stocks and bonds futures markets. Trade related news often creates cojumps on exchange rate markets.
Using a reduced rank regression framework as well as information criteria, we investigate the presence of commonalities in the intraday periodicity, a dominant feature in the return volatility of most intraday financial time series. We find that the test has little size distortion and reasonable power even in the presence of jumps. We also find that only three factors are needed to describe the intraday periodicity of 30 U.S. asset returns sampled at the 5-minute frequency. Interestingly, we find that for most series, the models imposing these commonalities deliver better forecasts of the conditional intraday variance than those where the intraday periodicity is estimated for each asset separately. Copyright The Author 2011. Published by Oxford University Press. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.
Opening, lunch and closing of financial markets induce a periodic component in the volatility of high-frequency returns. We show that price jumps cause a large bias in the classical periodicity estimators and propose robust alternatives. We find that accounting for periodicity greatly improves the accuracy of intraday jump detection methods. It increases the power to detect the relatively small jumps occurring at times for which volatility is periodically low and reduces the number of spurious jump detections at times of periodically high volatility. We use the series of detected jumps to estimate robustly the long memory parameter of the squared EUR/USD, GBP/USD and YEN/USD returns.
This paper takes a new look at the relation between volume and realized volatility. In contrast to prior studies, we decompose realized volatility into two major components: a continuously varying component and a discontinuous jump component. Our results confirm that the number of trades is the dominant factor shaping the volume-volatility relation, whatever the volatility component considered. However, we also show that the decomposition of realized volatility bears on the volume-volatility relation. Trade variables are positively related to the continuous component only. The well-documented positive volume-volatility relation does not hold for jumps.
This paper empirically investigates the induced effect of a more and less transparent central bank intervention (CBI) policy on rumors that can emerge. Using the case of Japan, we estimate a dynamic-probit model that explains the main determinants of false reports (i.e. falsely reported interventions) and anticipative rumors (i.e. rumors about future interventions) with reference to the intervention strategy adopted by the central bank for actual and oral interventions, and the uncertainty climate of the market captured by two volatility measures. Our results suggest that the induced effect of a transparent CBI policy on market rumors critically depends on the type of speeches made by officials.
This paper assesses the impact of G3 official central bank interventions on daily realized moments of DEM/USD exchange rate returns obtained from intraday data, 1989-2001. Event studies of the realized moments for the intervention day, the days preceding and following the intervention illustrate the shape of this impact. Rolling regressions results for an AR(FI)MA model for realized moments are used to measure the impact and its significance. The analysis confirms previous empirical findings of a temporary increase of volatility after a coordinated central bank intervention. It highlights new findings on the timing and the temporary nature of the impact of coordinated interventions on exchange rate volatility and on cross-moments between foreign exchange markets.
In the framework of encompassing regressions, the information content of the jump/continuous components of historical volatility is assessed when implied volatility is included as an additional regressor. The authors' empirical application focuses on daily and intradaily data for the S&P100 and S&P500 indexes, and daily data for the associated VXO and VIX implied volatility indexes. The results show that the total explanatory power of the encompassing regressions barely changes when the jump/continuous components are included, although the weekly and monthly continuous components are usually significant. This evidence supports the view that implied volatility has very high information content, even when extended decompositions of past realized volatility are used. Moreover, adding GARCH‐type volatility forecasts in the regressions confirms these results. © 2007 Wiley Periodicals, Inc. Jrl Fut Mark 27:337–359, 2007
We analyse the relationship between interventions and volatility at daily and intra-daily frequencies for the two major exchange rate markets. Using recent econometric methods to estimate realized volatility, we employ bi-power variation to decompose this volatility into a continuously varying and jump component. Analysis of the timing and direction of jumps and interventions imply that coordinated interventions tend to cause few, but large jumps. Most coordinated operations explain, statistically, an increase in the persistent (continuous) part of exchange rate volatility. This correlation is even stronger on days with jumps. Copyright © 2007 John Wiley & Sons, Ltd.
This article assesses the impact of official FOREX interventions of the three major central banks in terms of the dynamics of the currency components of the major exchange rates over the period 1989–2003. We identify the currency components of the mean and volatility processes of exchange rates using the framework developed recently by Bos and Shephard (2006). Our results show that, in general, concerted interventions tend to affect the dynamics of both currency components of the exchange rate. In contrast, unilateral interventions are found to primarily affect the currency of the central bank present in the market. Our findings also emphasize a role for interventions conducted by these central banks on other related FOREX markets. Copyright 2007, Oxford University Press.
This paper surveys the most important developments in multivariate ARCH-type modelling. It reviews the model specifications and inference methods, and identifies likely directions of future research. Copyright © 2006 John Wiley & Sons, Ltd.