Intraday volume-volatility nexus in the FX markets: evidence from an emerging market
Author
Şensoy, Ahmet
Serdengeçti, S.
Date
2019Source Title
International Review of Financial Analysis
Print ISSN
1057-5219
Publisher
Elsevier
Volume
64
Pages
1 - 12
Language
English
Type
ArticleItem Usage Stats
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Abstract
Using a dataset on local banks' daily FX transaction volume segregated into counterparty and transaction types, this article investigates the relationship between trading volume and intraday realized volatility for the US dollar/Turkish lira parity (USDTRY), one of the most traded emerging market currencies against US dollar. We question whether type of counterparty and transaction affects intraday volume-volatility relationship across various trading sessions around the world. We reveal that only the spot transactions of domestic customers have positive contemporaneous relation with realized volatility and this significance is valid only in global trading sessions that mostly overlap with the local trading hours. Furthermore, we utilize a metric for the belief dispersion on the level of future exchange rate via currency options and find that the dispersion significantly strengthens the volume-volatility nexus, confirming the Dispersion of Beliefs Hypothesis.
Keywords
FX microstructureVolume-volatility nexus
Mixture of distribution hypothesis (MDH)
Sequential information arrival hypothesis (SIAH)
Dispersion of beliefs hypothesis (DBH)