Common volatility in the foreign exchange market

Alexander, Carol O (1995) Common volatility in the foreign exchange market. Applied Financial Economics, 5 (1). pp. 1-10. ISSN 0960-3107

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Abstract

Weekly and daily US dollar and German mark returns to several currencies are investigated for common ARCH factors, using the Engle and Kozicki common features methodology. Daily returns are too noisy to reveal any common ARCH factors, and no evidence of such factors is found in either daily or weekly German mark returns. There is strong evidence of a common ARCH factor in sterling and yen US dollar weekly returns, and a possible explanation of this in terms of dollar dominated speculative investment is investigated. However, there is no evidence of common ARCH in German mark and guilder dollar returns, which is surprising given the similarity of their GARCH(1,1) volatilities. This could be due to the lack of dynamic structure in the tests proposed by R. F. Engle and S. Kozicki (1993) Testing for common features "Journal of Business Economics and Statistics", 11(4), 369–95

Item Type: Article
Schools and Departments: School of Business, Management and Economics > Business and Management
Subjects: H Social Sciences > HG Finance
Depositing User: Carol Alexander
Date Deposited: 26 Sep 2012 11:43
Last Modified: 26 Sep 2012 11:43
URI: http://sro.sussex.ac.uk/id/eprint/40593
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