Decomposing Intraday Dependence in Currency Markets: Evidence from the Aud/Usd Spot Market

Posted: 2 Aug 2005 Last revised: 15 Jul 2010

See all articles by Jonathan A. Batten

Jonathan A. Batten

RMIT University

Craig Ellis

Education Centre Australia

Warren P. Hogan

University of Technology, Sydney - School of Finance and Economics

Abstract

The local Hurst exponent, a measure employed to detect the presence of dependence in a time series, may also be used to investigate the source of intraday variation observed in the returns in foreign exchange markets. Given that changes in the local Hurst exponent may be due to either a time-varying range, or standard deviation, or both of these simultaneously, values for the range, standard deviation and local Hurst exponent are recorded and analyzed separately. To illustrate this approach, a high-frequency data set of the spot Australian dollar/U.S. dollar provides evidence of the returns distribution across the 24-hour trading 'day', with time-varying dependence and volatility clearly aligning with the opening and closing of markets. This variation is attributed to the effects of liquidity and the price-discovery actions of dealers.

Keywords: Scaling volatility, long-range dependence, foreign exchange, market microstructure

JEL Classification: C1, F3, G1

Suggested Citation

Batten, Jonathan A. and Ellis, Craig and Hogan, Warren P., Decomposing Intraday Dependence in Currency Markets: Evidence from the Aud/Usd Spot Market. Physica A: Statistical Mechanics and its Applications, Vol. 352, No. 2-4, pp. 558-572, 2005, Available at SSRN: https://ssrn.com/abstract=761868

Jonathan A. Batten (Contact Author)

RMIT University ( email )

Level 12, 239 Bourke Street
Melbourne, Victoria
Australia

HOME PAGE: http://https://www.rmit.edu.au/contact/staff-contacts/academic-staff/b/batten-professor-jonathan

Craig Ellis

Education Centre Australia ( email )

Sydney
Australia

Warren P. Hogan

University of Technology, Sydney - School of Finance and Economics ( email )

Haymarket
Sydney, NSW 2007
Australia
+61 2 9514 7730 (Phone)
+61 2 9514 7711 (Fax)

HOME PAGE: http://datasearch.uts.edu.au/business/finance/staff/StaffDetails.cfm?UnitStaffId=91

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