Federal Reserve Bank of St. Louis
The role of jumps in volatility spillovers in foreign exchange markets: meteor shower and heat waves revisited
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.
Cite this item
Jerome Lahaye & Christopher J. Neely, The role of jumps in volatility spillovers in foreign exchange markets: meteor shower and heat waves revisited, Federal Reserve Bank of St. Louis, Working Papers 2014-34, 01 Oct 2014, revised 19 Sep 2016.
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
- C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
- F65 - International Economics - - Economic Impacts of Globalization - - - Finance
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
Keywords: realized; volatility; jumps; transmission; periodicity; intraday; meteor shower; heat wave; exchange rate; euro; yen; dollar.
This item with handle RePEc:fip:fedlwp:2014-034
is also listed on EconPapers
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