From Hour to Hour in the Foreign Exchange Market

This paper analyzes hourly data for four foreign exchange spot rates, deutsche mark/dollar, British pound/dollar, Yen/dollar, and Swiss franc/dollar, with a series covering January-July 1986 involving 3, 409 observations. Besides standard findings of leptokurtosis and unit roots, three of the series exhibit negative first-order autocorrelation that became more pronounced after jumps. The series are pair-wise cointegrated and la gs of the deutsche mark/dollar helped in forecasting the Swiss franc/dollar. There is a marked hourly pattern in foreign exchange volatility, with much of the weekend break effect occurring only after Europe reopens at 09.00 Greenwich mean time on Monday mornings.