Testing for Market Microstructure Effects in Intraday Volatility: A Reassessment of the Tokyo FX Experiment

Torben G. Anderson, Tim Bollerslev and Ashish Das

No 6666, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper develops mew robust inference procedures for analyzing the intraday return volatility patterns that constitute a focal point of much market microstructure theory. Our empirical analysis is motivated by the recent lifting of trading restrictions in the interbank foreign exchange (FX) market for Japanese banks during the Tokyo lunch period. Ito, Lyons, and Melvin (1998) (ILM) argue that this deregulation resulted in a highly significant shift in the volatility pattern across the entire Japanese trading day, indicating that private information is an important component of the price formation process in the FX market. In contrast, our robust analysis finds no evidence for any discernible change in the pattern outside of the Tokyo lunch period. Moreover, we document that the standard variance-ratio methodology inference in this high-frequency data context.

JEL-codes: C12 C22 (search for similar items in EconPapers)
Date: 1998-07
New Economics Papers: this item is included in nep-ecm and nep-ifn
Note: AP
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Citations: View citations in EconPapers (6)

Published as "Variance-ratio Statistics and High-frequency Data: Testing for Changes in Intraday Volatility Patterns" Journal of Finance, Volume 56: Issue 1 Pages 305 - 327 (2001)

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