Volatility in the Foreign Currency Futures Market

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Abstract
We examine the volatility implications of around-the-clock foreign exchange trading with transaction data on futures contracts from the Chicago Mercantile Exchange and the London International Financial Futures Exchange. We find higher U.S.–European and U.S.–Japanese exchange-rate volatilities during U.S. trading hours and higher European cross-rate volatilities during European trading hours. While the disclosure of private information through trading may partly explain these volatility patterns, we conclude that the increased volatility is more likely driven by macroeconomic news announcements. An analysis of inter- and intraday data also reveals that volatility increases at times that coincide with the release of U.S. macroeconomic news.