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

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

Research output: Contribution to journalArticlepeer-review

6 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)558-572
Number of pages15
JournalPhysica A: Statistical Mechanics and its Applications
Volume352
Issue number2-4
DOIs
Publication statusPublished - 15 Jul 2005

Keywords

  • Foreign exchange
  • Long-range dependence
  • Market microstructure
  • Scaling volatility

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