Working Paper: NBER ID: w1853
Authors: Takatoshi Ito; V. Vance Roley
Abstract: Intra-daily movements in the yen/dollar exchange rate were examined in four non-overlapping segments within each business day from January1980 to September 1985. The empirical results yielded several conclusions. First, most depreciation of the yen (appreciation of the dollar) from late 1982 to early 1984 occurred in the New York market. The direction of the yen was mostly neutral in the Tokyo market. Also, the volatility of the exchange rate decreased considerably in the Tokyo market. The volatility in the New York market, on the other hand, did not decrease untilvery recently. Second, market efficiency was examined in terms of the random-walk behavior of short-run movements in the yen/dollar rate. Information on the preceding segments within a day was sometimes significant in predicting the exchange rate movement in a market. Third, there is evidence of the "profit-taking" behavior, or overshooting, in that a large jump (more than 3 absolute yen) in any market tends to be reversed by a fifth of the jump during the same day in the next market. Finally,the relative effects of news from the U.S. and Japan were examined explicitly both with respect to possible major events behind large jumps andthe response of the yen/dollar rate to particular economic announcements in both countries. Over the entire sample period, news concerning the U.S. money stock had the only significant effects.
Keywords: Yen-Dollar Exchange Rate; Market Efficiency; Economic News
JEL Codes: F31; G14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| US market activity (N22) | yen-dollar exchange rate (F31) |
| prior information (D80) | current exchange rate behavior (F31) |
| large jumps in exchange rate (F31) | price corrections (D43) |
| US money stock announcements (E50) | yen-dollar exchange rate (F31) |
| economic news (E66) | yen-dollar exchange rate (F31) |
| Japanese economic announcements (E60) | yen-dollar exchange rate (F31) |