Working Paper: NBER ID: w12413
Authors: Takatoshi Ito; Yuko Hashimoto
Abstract: This paper examines intra-day patterns of the exchange rate behavior, using the "firm" bid-ask quotes and transactions of USD-JPY and Euro-USD recorded in the electronic broking system of the spot foreign exchange markets. The U-shape of intra-day activities (deals and price changes) and return volatility is confirmed for Tokyo and London participants, but not for New York participants. Activities and volatility do not increase toward the end of business hours in the New York market, even on Fridays (ahead of weekend hours of non-trading). It is found that there exists a high positive correlation between volatility and activities and a negative correlation between volatility and the bid-ask spread. A negative correlation is observed between the number of deals and the width of bid-ask spread during business hours.
Keywords: foreign exchange market; intraday seasonality; bid-ask spread; volatility; electronic broking system
JEL Codes: F31; F33; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Market activities (G10) | Volatility (E32) |
| Volatility (E32) | Bid-ask spread (D44) |
| Number of deals (C78) | Bid-ask spread (D44) |
| U-shape pattern of intraday activities (E32) | Price changes for Tokyo and London participants (F29) |