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The Impact of Surprise Information on the Relation between Volatility and Trading Volume in Exchange Rate Markets (in Korean)

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  • Beum-Jo Park

    (Dankook University)

Abstract

This paper introduces the concept of 'surprise information', which is distinguished from general information, and demonstrates employing the MDH theory that its effect on the relationship between volatility and trading volumes in markets differs from that of general information. Ignorance of the feature of surprise information might lead to conflicting results concerning this relationship in empirical studies. Further, to pick up on unobservable surprise information, this paper proposes a method based upon a quantile regression approach and adds a dummy variable for surprise information into the variance equation in GARCH models. Strong evidence in favor of the specification over the standard GARCH is based on empirical application with high frequency data of KRW/USD exchange rates, which substantially support the distinctly positive relationship between volatility and trading volumes and show a significant reduction of GARCH effects.

Suggested Citation

  • Beum-Jo Park, 2007. "The Impact of Surprise Information on the Relation between Volatility and Trading Volume in Exchange Rate Markets (in Korean)," Economic Analysis (Quarterly), Economic Research Institute, Bank of Korea, vol. 13(1), pages 56-87, March.
    • Handle: RePEc:bok:journl:v:13:y:2007:i:1:p:56-87
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    More about this item

    Keywords

    Surprise information; Mixture of distribution hypothesis (MDH); Trading volume; Realized volatility; Quantile regression; GARCH model; High frequency data of Won/Dollar exchange rates;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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