NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Meteor Showers or Heat Waves? Heteroskedastic Intra-Daily Volatility in the Foreign Exchange Market

Robert F. Engle, Takatoshi Ito, Wen-Ling Lin

NBER Working Paper No. 2609 (Also Reprint No. r1526)
Issued in June 1988
NBER Program(s):   ME

This paper defines and tests a form of market efficiency called market dexterity which requires that asset prices adjust instantaneously and completely in response to new information. Examining the behavior of the yen/dollar exchange rate while each of the major markets are open it is possible to test for informational effects from one market to the next. Assuming that news has only country specific autocorrelation such as a heat wave. any intra-daily volatility spillovers (meteor showers) become evidence against market dexterity. ARCII models are employed to model heteroskedasticity across intra-daily market segments. Statistical tests lead to the rejection of the heat wave and therefore the market dexterity hypothesis. Using a volatility type of vector autoregression we examine the impact of news in one market on the time path of volatility in other markets.

download in pdf format
   (889 K)

download in djvu format
   (358 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w2609

Published: Econometrica 1990, Vol. 58, No. 3, pp. 525-542, (May 1990). citation courtesy of

 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us