Working Paper

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.

Keywords: intraday; volatility; euro; exchange rate; transmission; dollar.; jumps; periodicity; yen; meteor shower; realized; heat wave;

JEL Classification: C13; C14; C32; C58; F31; F37; F65; G15;

Status: Published in Journal of Business and Economic Statistics

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Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2014-10-01

Number: 2014-034