Jumps in Equilibrium Prices and Asymmetric News in Foreign Exchange Markets

Imane El Ouadghiri () and Remzi Uctum ()
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Imane El Ouadghiri: EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique
Remzi Uctum: EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique

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Abstract: In this paper we examine the intraday effects of surprises from scheduled and unscheduled announcements on six major exchange rate returns (jumps) using an extension of the standard Tobit model with heteroskedastic and asymmetric errors. Since observed volatility at high frequency often contains microstructure noise, we use a recently proposed non parametric test to filter out noise and extract jumps from noise-free FX returns (Lee and Mykland (2012)). We found that the most influential scheduled macroeconomic news are globally related to job markets, output growth indicators and public debt. These surprises impact FX jumps rather in the form of good news, as a result of pessimistic forecasts from traders during the crisis period analyzed. We reconfirmed for most of the currencies the hypothesis that negative volatility shocks have a greater impact on volatility than positive shocks of the same magnitude, reflecting markets' concern about the cost of stabilization policies.

Keywords: Forex market; announcements; jump detection test; high frequency data; microstructure noise; asymmetric GARCH. (search for similar items in EconPapers)
Date: 2015
Note: View the original document on HAL open archive server: https://hal.science/hal-04141414
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