DM-Dollar Volatility: Intraday Activity Patterns, Macroeconomic Announcements, and Longer Run Dependencies
NBER Working Paper No. 5783
This paper characterizes the volatility in the DM-dollar foreign exchange market using an annual sample of five-minute returns. Our modeling approach explicitly captures the pronounced intraday activity patterns, the strong macroeconomic announcement effects, and the volatility persistence, or ARCH effects, familiar from lower frequency returns. The different features are separately quantified and shown, in conjunction, to account for a substantial fraction of the realized return variability, both at the intradaily and daily levels. Moreover, we demonstrate how the high frequency returns, when properly modeled, constitute an extremely valuable and vastly underutilized resource for better understanding the volatility dynamics at the daily or lower frequencies.
Published: Torben G. Andersen and Tim Bollerslev. "Deutsche Mark–Dollar Volatility: Intraday Activity Patterns, Macroeconomic Announcements, and Longer Run Dependencies" Volume 53: Issue 1, pp 219 - 265 (February 1998)