Measuring the Impact Intradaily Events Have on the Persistent Nature of Volatility

Mark Jensen and Brandon Whitcher ()
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Brandon Whitcher: Pfizer Worldwide Research & Development

A chapter in Wavelet Applications in Economics and Finance, 2014, pp 103-129 from Springer

Abstract: Abstract In this chapter we measure the effect a scheduled event, like the opening or closing of a regional foreign exchange market, or a unscheduled act, such as a market crash, a political upheaval, or a surprise news announcement, has on the foreign exchange rate’s level of volatility and its well documented long-memory behavior. Volatility in the foreign exchange rate is modeled as a non-stationary, long-memory, stochastic volatility process whose fractional differencing parameter is allowed to vary over time. This non-stationary model of volatility reveals that long-memory is not a spurious property associated with infrequent structural changes, but is a integral part of the volatility process. Over most of the sample period, volatility exhibits the strong persistence of a long-memory process. It is only after a market surprise or unanticipated economic news announcement that volatility briefly sheds its strong persistence.

Keywords: Discrete Wavelet Transform; Wavelet Coefficient; Stochastic Volatility; Stochastic Volatility Model; Wavelet Filter (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:spr:dymchp:978-3-319-07061-2_5

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DOI: 10.1007/978-3-319-07061-2_5

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