Information Spillover, Volatility and the Currency Markets for the Binary Choice Model

We use an impulse response methodology to analyse the effects of U.S. macroeconomic news announcements on the volatilities of three major exchange rates (Euro, Pound Sterling and Yen). Our data consist of 5 minute returns on exchange rates as well as the times of news announcements. In the definition of impulse responses, we allow for different types of news, and consider two categories in the application: those considered positive or negative for the U.S. economy. Using a multivariate GARCH model with exogenous news effects, we find that the initial impact of positive news on the volatility of the Pound is higher than that of the Euro, whereas the persistence of shocks is highest for the Yen. For negative news, we find that an important part of the impact on the Yen and Pound is induced by volatility spillover from the Euro.Information, Volatility, Impulse Response Function, Foreign Exchange

Intra-Daily FX Optimal Portfolio Allocation

We design and implement optimal foreign exchange portfolio allocations. An optimal allocation maximizes the expected return subject to a Value-at-Risk (VaR) constraint. Based on intradaily data, the optimization procedure is carried out at regular time intervals. For the estimation of the conditional variance from which the VaR is computed, we use univariate and multivariate GARCH models. The result for each model is given by the best intradaily investment recommendations in terms of the optimal weights of the currencies in the risk portfolio.Optimal portfolio selection; Value-at-risk; GARCH models; Foreign exchange markets

Macroeconomic News Surprises and Volatility Spillover in the Foreign Exchange Markets

Abstract This paper addresses the central open issue in exchange rate economics: the link between exchange rate volatility and economic fundamentals. In the framework of a multivariate volatility model that allows for volatility spillover, we develop a new impulse response analysis to estimate and decompose the simultaneous effect of macroeconomic news surprises on the foreign exchange volatility. We show that news announcement effects include two components; a direct and an indirect effect induced by volatility spillover. We show that more than 50% of the total accumulated news effect on the Pound and the Yen are due to volatility transmission from the two major currencies and mainly from the Euro. JEL: F31, F4, C32, C

Information Spillover, Volatility and the Currency Markets

We use an impulse response methodology to analyse the effects of U.S. macroeconomic news announcements on the volatilities of three major exchange rates (Euro, Pound Sterling and Yen). Our data consist of 5 minute returns on exchange rates as well as the times of news announcements. In the definition of impulse responses, we allow for different types of news, and consider two categories in the application: those considered positive or negative for the U.S. economy. Using a multivariate GARCH model with exogenous news effects, we find that the initial impact of positive news on the volatility of the Pound is higher than that of the Euro, whereas the persistence of shocks is highest for the Yen. For negative news, we find that an important part of the impact on the Yen and Pound is induced by volatility spillover from the Euro

Volatility dynamics around information : empirical evidence from the euro/dollar currency market/

Roughly all the previous empirical research, focusing on the information effects on volatility, has investigated the volatility dynamics during and after the release of public information. Researchers use ARCH-type or realized volatility models and they proxy public information by market news announcements. So far, studies focusing on the effect of noise or technical trading on volatility have been limited to theoretical results without any empirical evidence. Technical trading is trading based on technical signals. As a consequence, the aim of this dissertation is to answer to the following question: how does foreign exchange volatility behave, in the very short term, around public information and technical signals ? To answer to this question we study the volatility dynamics before, during and after public news announcements and technical chart pattern signals. In order to meet this objective, we implement different methodologies specific to the different chapters of the dissertation. Each chapter tries to answer to a sub-question emerging from the main question of the thesis. This thesis contributes to the empirical finance literature on intradaily exchange rate volatility as follows. First we present evidence that volatility increases in the pre-announcement period of scheduled news. Second, we show that foreign exchange dealers quoting activity reacts to news announcements and it conveys useful information. The third contribution consists in presenting a new approach to recognize technical chart patterns from a time series, and shedding light on the predictive success of the technical chart signals. Finally, the last contribution consists in the finding that technical signals, considered by economists as "noise", have a significant effect on volatility.(IAG 3)--UCL, 200

Pouvoir prédictif et profitabilité des figures chartistes : application au marché des changes Euro/Dollar

Ce papier ´etudie la sensibilit´e de la pr´evisibilit´e et de la profitabilit´e des figures chartistes aux fr´equences d’observations, types de cours et `a la nature des m´ethodes de d´etection sur le march´e des changes euro/dollar. Les diff´erentes figures ´etudi´ees pr´esentent un pouvoir pr´edictif sup´erieur `a 50% et l’adoption des r`egles de trading sous-jacentes aux figures g´en`ere des profits significatifs. Nous concluons ´egalement `a l’int´erˆet de l’adoption d’une m´ethode de d´etection des figures chartistes tenant compte des cours les plus hauts et les plus bas. L’utilisation du cours MID semble aussi le plus appropri´e pour g´en´erer des profits significatifs. Par contre, le choix de la fr´equence d’observations d´epend principalement de l’horizon d’intervention des traders

Les annonces, l'activité et la volatilité sur le marché des changes euro/dollar

Ce papier étudie la sensibilité de la volatilité des rendements du taux de change euro/dollar à neuf catégories d'événements correspondants à des annonces prévues et non prévues. Nous distinguons et analysons les réactions pré-annonce, contemporaines à l'annonce et post-annonce. L'utilisation de modèles de type EGARCH et volatilité réalisée appliqués à des données intrajournali ères indique une réaction importante de la volatilité dans les périodes pré-annonce, en particulier pour les annonces prévues. Le niveau d'activité du marché a également un impact significatif sur la volatilité

The information content of individual FX dealer's quoting activity

We investigate the information content of dealers' quoting activity as measured by the frequency of price revisions in the Euro/Dollar foreign exchange market. We use the multivariate double autoregressive conditional Poisson model designed for time series of count data. We find that dealers react differently to the same news announcements, some dealers increasing their activity, whilst others decrease it in response to the same news. We attribute this to the heterogeneous interpretation of the news content by individual traders and to the significant influence of some dealers on others. We also find very significant interaction between dealers' quoting activity, which suggests that dealers monitor the quoting activity of others to infer their private information and their interpretation of public news announcements

Information Spillover, Volatility and the Currency Markets

We use an impulse response methodology to analyse the effects of U.S. macroeconomic news announcements on the volatilities of three major exchange rates (Euro, Pound Sterling and Yen). Our data consist of 5 minute returns on exchange rates as well as the times of news announcements. In the definition of impulse responses, we allow for different types of news, and consider two categories in the application: those considered positive or negative for the U.S. economy. Using a multivariate GARCH model with exogenous news effects, we find that the initial impact of positive news on the volatility of the Pound is higher than that of the Euro, whereas the persistence of shocks is highest for the Yen. For negative news, we find that an important part of the impact on the Yen and Pound is induced by volatility spillover from the Euro

Macroeconomic news surprises and volatility spillover in foreign exchange markets

This paper examines the link between exchange rate volatility and economic fundamentals. In the framework of a multivariate volatility model that allows for volatility spillover, we develop a new impulse response analysis to estimate and decompose the simultaneous effect of macroeconomic news surprises on the foreign exchange volatility. We show that news announcement effects include two components; a direct and an indirect effect induced by volatility spillover. We show that more than 50% of the total accumulated news effect on the Pound and the Yen are due to volatility transmission from the two major currencies and mainly from the Euro