Deutsche Mark–Dollar Volatility: Intraday Activity Patterns, Macroeconomic Announcements, and Longer Run Dependencies


  • Torben G. Andersen,

    1. J.L. Kellogg Graduate School of Management, Northwestern University
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  • Tim Bollerslev

    1. Department of Economics, University of Virginia
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    • Andersen is at the J.L. Kellogg Graduate School of Management, Northwestern University. Bollerslev is with the Department of Economics, University of Virginia. We are grateful for financial support from the Institute for Quantitative Research in Finance (the Q-Group). Special thanks are also due to Olsen and Associates for making the foreign exchange quotes available. Furthermore, we have received valuable comments from seminar participants at Northwestern University, University of Chicago, University of Houston, University of Windsor, Pennsylvania State University, the NBER Universities Research Conference on the Determination of Exchange Rates, and the Econometric Society Summer Meetings in Iowa City. We are in particular indebted to comments from Mike Fishman, John Heaton, Bob Hodrick, Takatoshi Ito, Ken Kavajecz, Richard Lyons, Bruce Mizrach, an anonymous referee, and the editor, Rene Stulz. Needless to say, we remain fully responsible for the content.


This paper provides a detailed characterization of the volatility in the deutsche mark–dollar foreign exchange market using an annual sample of five-minute returns. The approach captures the intraday activity patterns, the macroeconomic announcements, and the volatility persistence (ARCH) known from daily returns. The different features are separately quantified and shown to account for a substantial fraction of return variability, both at the intraday and daily level. The implications of the results for the interpretation of the fundamental “driving forces” behind the volatility process is also discussed.