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Intraday return inefficiency and long memory in the volatilities of forex markets and the role of trading volume

Syed Jawad Hussain Shahzad (), Jose Areola Hernandez, Waqas Hanif and Ghulam Mujtaba Kayani

Physica A: Statistical Mechanics and its Applications, 2018, vol. 506, issue C, 433-450

Abstract: We investigate the dynamics of efficiency and long memory, and the impact of trading volume on the efficiency of returns and volatilities of four major traded currencies, namely, the EUR, GBP, CHF and JPY. We do so by implementing full sample and rolling window multifractal detrended fluctuation analysis (MF-DFA) and a quantile-on-quantile (QQ) approach. This paper sheds new light by employing high frequency (5-min interval) data spanning from Jan 1, 2007 to Dec 31, 2016. Realized volatilities are estimated using Andersen et al.’s (2001) measure, while the QQ method employed is drawn from Sim and Zhou (2015). We find evidence of higher efficiency levels in the JPY and CHF currency markets. The impact of trading volume on efficiency is only significant for the JPY and CHF currencies. The GBP currency appears to be the least efficient, followed by the EUR. Implications of the results are discussed.

Keywords: MF-DFA; Intraday data; Efficiency; Realized variance; Long-memory; Quantile-on-quantile (search for similar items in EconPapers)
JEL-codes: G01 G14 (search for similar items in EconPapers)
Date: 2018
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