Intraday Volume-Volatility Nexus in the FX Markets: Evidence from an Emerging Market

Suleyman Serdengecti and Ahmet Sensoy

Working Papers from Research and Monetary Policy Department, Central Bank of the Republic of Turkey

Abstract: Using a dataset on local banks' daily FX transaction volume segregated into counterparty and transaction types, this article investigates the relationship between trading volume and intraday realized volatility for the US dollar/Turkish lira parity (USDTRY), one of the most traded emerging market currencies against US dollar. We question whether type of counterparty and transaction affects intraday volume-volatility relationship across various trading sessions around the world. We reveal that only the spot transactions of domestic customers have positive contemporaneous relation with realized volatility and this significance is valid only in global trading sessions that mostly overlap with the local trading hours. Furthermore, we utilize a metric for the belief dispersion on the level of future exchange rate via currency options and find that the dispersion significantly strengthens the volume-volatility nexus, confirming the Dispersion of Beliefs Hypothesis.

Keywords: FX microstructure; Volume-volatility nexus; Mixture of distribution hypothesis (MDH); Sequential information arrival hypothesis (SIAH); Dispersion of beliefs hypothesis (DBH) (search for similar items in EconPapers)
JEL-codes: D49 G12 G15 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-ara and nep-mst
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Citations: View citations in EconPapers (8)

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Journal Article: Intraday volume-volatility nexus in the FX markets: Evidence from an emerging market (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:tcb:wpaper:1928

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