Intraday effects of macroeconomic shocks on the US Dollar-Euro exchange rates

This paper characterizes the intriguing features of high frequency 15-min Dollar Euro foreign exchange returns data. The FIGARCH model is found to be the preferred specification for the long memory volatility process in the high frequency returns. This paper then examines how macroeconomic shocks affect the high frequency Dollar Euro returns on an intraday basis. Quantifying the intraday effects of the shocks on the high frequency returns by using a linearly distributed lag dummy variable, this paper finds that the effects on the high frequency returns are generally statistically significant and that they appear to be asymmetric depending on the regions and the signs of the shocks and to be persistent for several lags even within a day. However, the macroeconomic shocks are found not to affect the long memory property in the high frequency returns implying that the linear dummy variable model may not be enough to explain the long memory property. (C) 2007 Elsevier B.V. All rights reserved.