Capital flows and Japanese asset volatility

Brett W. Fawley and Christopher Neely

No 2011-034, Working Papers from Federal Reserve Bank of St. Louis

Abstract: Characterizing asset price volatility is an important goal for financial economists. The literature has shown that variables that proxy for the information arrival process can help explain and/or forecast volatility. Unfortunately, however, obtaining good measures of volume and/or order flow is expensive or difficult in decentralized markets such as foreign exchange. We investigate the extent that Japanese capital flows?which are released weekly?reflect information arrival that improves foreign exchange and equity volatility forecasts. We find that capital flows can help explain transitory shocks to GARCH volatility. Transactions by Japanese residents in foreign bond markets have the most explanatory power among capital flows and that power is much greater in the second subsample.

Keywords: Capital movements; Foreign exchange; Japan (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-for and nep-opm
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Journal Article: CAPITAL FLOWS AND JAPANESE ASSET VOLATILITY (2012)
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DOI: 10.20955/wp.2011.034

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