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A hybrid approach to exchange rates

Author

Listed:
  • Guangfeng Zhang
  • Ian Marsh
  • Ronald MacDonald

Abstract

Purpose - – This study aims to investigate the impact of information, both public macro news and private information, on exchange rate volatility in an integrated framework. Design/methodology/approach - – The authors apply real-time data of macro announcements and high-frequency trading data (German Deutsche Mark to US dollar, DEM/USD, from 1 May to 31August 1996) to GARCH models and examine various model specifications. Findings - – Data analysis demonstrates real-time macro news and market makers’ private information both have a significant impact on exchange rate volatility, but there is no interaction between macro and micro information in the information transmission process. Originality/value - – This study contributes to empirical hybrid studies of examining exchange rates volatility, which is in line with literature that combine both macro and micro fundamentals in examining exchange rates variation. Particularly, a key element of this study is to use a microstructure fundamental variable, namely, order flow, to capture private information in an exchange rate volatility study.

Suggested Citation

  • Guangfeng Zhang & Ian Marsh & Ronald MacDonald, 2016. "A hybrid approach to exchange rates," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 33(1), pages 50-68, March.
    • Handle: RePEc:eme:sefpps:v:33:y:2016:i:1:p:50-68
    DOI: 10.1108/SEF-10-2014-0185
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    Citations

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    Cited by:

    1. Firouzi, Shahrokh & Wang, Xiangning, 2021. "The interrelationship between order flow, exchange rate, and the role of American economic news," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).
    2. Mohamed Ibrahim Nor & Tajul Ariffin Masron & Tariq Tawfeeq Yousif Alabdullah, 2020. "Macroeconomic Fundamentals and the Exchange Rate Volatility: Empirical Evidence From Somalia," SAGE Open, , vol. 10(1), pages 21582440198, January.

    More about this item

    Keywords

    Microstructure; Private information; Exchange rate volatility; Information interaction; Macro news; Order flow; G1;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

    Statistics

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