Dynamika vztahu mezi objemy a volatilitou na měnových trzích

Tůma, Adam

This work investigates the volume-volatility relationship dynamics in the currency markets using data of five currency pairs in the period between 2010 and 2022. By employing multiple specifications of the HAR model with volume- related regressors and also with time-varying parameters (TVP), we examine the relationships' changing dynamics over time with a focus on improving volatility forecasting performance. Our main findings suggest a strong correlation between volume and volatility. The TVP-HARV model shows significantly changing dy- namics of the volume-volatility relationship, especially during periods affected by politics, changing monetary policies or global crises. The proposed models, however, do not improve out-of-sample volatility forecasting performance com- pared to the benchmark HAR model. The causal effect in the volume-volatility relationship in the currency markets is slightly more substantial in the direction of volatility towards volume, where we find slight forecasting improvements. Our findings conclude that volume and volatility in the currency markets are mainly moving simultaneously with a very strong correlation and much weaker and often insignificant causal effects on both sides, which supports the mixture of distributions hypothesis.

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