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Trading Patterns and Prices in the Interbank Foreign Exchange Market
Author(s) -
BOLLERSLEV TIM,
DOMOWITZ IAN
Publication year - 1993
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1993.tb04760.x
Subject(s) - volatility (finance) , volatility clustering , economics , econometrics , liberian dollar , foreign exchange market , foreign exchange , financial economics , monetary economics , autoregressive conditional heteroskedasticity , finance
ABSTRACT The behavior of quote arrivals and bid‐ask spreads is examined for continuously recorded deutsche mark‐dollar exchange rate data over time, across locations, and by market participants. A pattern in the intraday spread and intensity of market activity over time is uncovered and related to theories of trading patterns. Models for the conditional mean and variance of returns and bid‐ask spreads indicate volatility clustering at high frequencies. The proposition that trading intensity has an independent effect on returns volatility is rejected, but holds for spread volatility. Conditional returns volatility is increasing in the size of the spread.