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Decomposing intraday dependence in currency markets: evidence from the AUD/USD spot market

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  • Batten, Jonathan A.
  • Ellis, Craig A.
  • Hogan, Warren P.

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/US 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.

Suggested Citation

  • Batten, Jonathan A. & Ellis, Craig A. & Hogan, Warren P., 2005. "Decomposing intraday dependence in currency markets: evidence from the AUD/USD spot market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 352(2), pages 558-572.
    • Handle: RePEc:eee:phsmap:v:352:y:2005:i:2:p:558-572
    DOI: 10.1016/j.physa.2005.01.012
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    1. Cajueiro, Daniel O. & Tabak, Benjamin M., 2005. "Testing for time-varying long-range dependence in volatility for emerging markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 346(3), pages 577-588.
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    Cited by:

    1. Shahzad, Syed Jawad Hussain & Arreola-Hernandez, Jose & Bekiros, Stelios & Rehman, Mobeen Ur, 2018. "Risk transmitters and receivers in global currency markets," Finance Research Letters, Elsevier, vol. 25(C), pages 1-9.
    2. Hull, Matthew & McGroarty, Frank, 2014. "Do emerging markets become more efficient as they develop? Long memory persistence in equity indices," Emerging Markets Review, Elsevier, vol. 18(C), pages 45-61.
    3. Peter G. Szilagyi & Jonathan A. Batten, 2006. "Arbitrage, Covered Interest Parity and Long-Term Dependence between the US Dollar and the Yen," The Institute for International Integration Studies Discussion Paper Series iiisdp128, IIIS.
    4. Batten, Jonathan A. & Szilagyi, Peter G., 2007. "Covered interest parity arbitrage and temporal long-term dependence between the US dollar and the Yen," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 376(C), pages 409-421.

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