The role of jumps in volatility spillovers in foreign exchange markets: meteor shower and heat waves revisited
Abstract: This paper extends the previous literature on geographic (heat waves) and intertemporal (meteor showers) foreign exchange volatility transmission to characterize the role of jumps and cross-rate propagation. We employ heterogeneous autoregressive (HAR) models to capture the quasi-long-memory properties of volatility and the Shapley-Owen R2 measure to quantify the contributions of components. We conclude that meteor showers are more influential than heat waves, that jumps play a modest but significant role in volatility transmission and that significant, bidirectional cross-rate volatility transmission exists. Finally, we illustrate what types of news weaken or strengthen heat wave and meteor shower effects with sensitivity analysis.
Status: Published in Journal of Business and Economic Statistics
File format is application/pdf
Description: Full text
Provider: Federal Reserve Bank of St. Louis
Part of Series: Working Papers
Publication Date: 2014-10-01