Realized FX volatility: statistical properties and applications

Eom, Cheoljun, Kaizoji, Taisei, Park, Jong Won and Scalas, Enrico (2018) Realized FX volatility: statistical properties and applications. Future Research Korean Journal of Futures and Options, 26 (1). pp. 1-25. ISSN 1229-988x

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Abstract

This study demonstrates the effect of correlation between volatility and statistical properties of realized volatility measured using the daily high-frequency exchange rate data of four representative currencies of the US dollar (Japanese yen, British pound, European euro, Canadian dollar) Respectively. The validity of the distributional and dynamic attributes of realized volatility is consistent with the results of previous studies. In the case of the Japanese yen, however, the correlation between the volatility and the correlation was not observed. This is due to the negative result of the exchange rate and the negative exchange rate during the Japanese government's continuous intervention in the foreign exchange market. These results show that the relationship between volatility and correlation (+) is not a general phenomenon in the presence of foreign exchange market intervention, and that foreign exchange market intervention can distort market efficiency. The results of this study indicate that multivariate measures of real volatility using day - to - day high frequency data can be a useful tool for identifying external interventions to the foreign exchange market.
This paper empirically examines the statistical properties of realized volatility and the relationship between volatility and correlation measurements realized by using intraday high-frequency foreign exchange (FX) rates. Results regarding the distributional and dynamic properties of the volatility are in agreement with the findings of previous studies. However, the positive correlation is present in previous studies. On trading days with low volatility in the FX market, the correlation coefficients between JPY and other currencies have positive values, while the correlation coefficients on trading days with high volatility show negative values. These results are due to the Japanese government's intervention in the FX market, especially during trading days with high volatility. In this regard, our results suggest that the positive relationship between volatility and correlations is not a general phenomenon in the case of government intervention and government intervention. In addition, we show that the multivariate measurement of volatility based on intraday high-frequency data is a useful tool for determining the occurrence of external intervention in the FX market.

Item Type: Article
Schools and Departments: School of Mathematical and Physical Sciences > Mathematics
Research Centres and Groups: Probability and Statistics Research Group
Subjects: H Social Sciences > HG Finance > HG0101 Theory. Method. Relation to other subjects > HG0106 Mathematical models
Q Science > QA Mathematics > QA0273 Probabilities. Mathematical statistics
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Depositing User: Enrico Scalas
Date Deposited: 16 May 2018 10:54
Last Modified: 02 Jul 2019 14:21
URI: http://sro.sussex.ac.uk/id/eprint/75861

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