Intra-Day Seasonality in Foreign Exchange Market Transactions

Cotter, John and Dowd, Kevin (2007): Intra-Day Seasonality in Foreign Exchange Market Transactions.

Abstract

This paper examines the intra-day seasonality of transacted limit and market orders in the DEM/USD foreign exchange market. Empirical analysis of completed transactions data based on the Dealing 2000-2 electronic inter-dealer broking system indicates significant evidence of intraday seasonality in returns and return volatilities under usual market conditions. Moreover, analysis of realised tail outcomes supports seasonality for extraordinary market conditions across the trading day.

• Item Type: MPRA Paper
• Institution: University College Dublin
• Language: English
• Subjects: G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets; G - Financial Economics > G1 - General Financial Markets

References

Andersen, T.G., Bollerslev, T., Diebold, F. X., & Labys, P., 2001, The distribution of exchange rate volatility, Journal of American Statistical Association, 96, 42-55. Bank for International Settlements (BIS), 2004, Triennial central bank survey of foreign exchange and derivative market activity in April 2004. Cotter, J., 2005, Tail Behaviour Of The Euro, Applied Economics, 37, 1 –14. Danielsson, J., and R. Payne, 2002, Real trading patterns and prices in spot foreign exchange markets, Journal of International Money and Finance, 21, 203–222. 13 de Haan, L., Resnick, S. I., Rootzen, H. and C. G. de Vries, 1989, Extremal Behaviour of Solutions to a Stochastic Difference Equation with Applications to ARCH Processes, Stochastic Processes and their Applications, 32, 213-224. Embrechts, P., Klüppelberg, C., and Mikosch T., 1997, Modelling Extremal Events for Insurance and Finance, (Springer-Verlag, Berlin). Evans, M. D. and Lyons, R. K. 2002, Order flow and exchange rate dynamics. Journal of Political Economy, 110, 170– 180. Goldie, C.M., Smith, R.L., 1987, Slow variation with remainder: theory and applications, Quarterly Journal of Mathematics, 38, 45–71. Goldstein, M. A., and Kavajecz, K. A., 2004, Liquidity provision during circuit breakers and extreme market movements, Journal of Financial Markets, 7, 301-333. Harris, L., and J. Hasbrouck, 1996, Market vs. limit orders: the SuperDOT evidence on order submission strategy, Journal of Financial and Quantitative Analysis, 31, 213–231. Hasbrouck, J., and G. Saar, 2004, Limit Orders and Volatility in a Hybrid Market: The Island ECN, Working Paper, New York University. Huisman, R., Koedijk, K. G., Kool, C. J. M., and Palm, F., 2001, Tail-Index Estimates in Small Samples, Journal of Business and Economic Statistics, 19, 208-216. Longin F.M., 2000. From Value at Risk to Stress Testing: The Extreme Value Approach, Journal of Banking and Finance, 24, 1097-1130. Loretan M. and P.C.B. Phillips, 1994, Testing the Covariance Stationarity of Heavytailed Time Series, Journal of Empirical Finance, 1, 211-248. 14 Williams, P., 2005. The foreign exchange and over-the-counter derivatives market in the United Kingdom, Bank of England Quarterly Bulletin, Winter, 44, 470-484.