A GEOGRAPHICAL MODEL FOR THE DAILY AND WEEKLY SEASONAL VOLATILITY IN THE FOREIGN-EXCHANGE MARKET

The daily and weekly seasonality of foreign exchange volatility is mod eled by introducing an activity variable. This activity is explained b y a simple model of the changing and sometimes overlapping market pres ence of geographical components (East Asia, Europe, and America). Inte grating this activity over time results in the new 9 time scale, chara cterized by non-seasonal volatility. This scale, applied to dense data streams of absolute price changes, succeeds in removing most of the se asonal heteroscedasticity in an autocorrelation study. Unexpectedly, t he positive autocorrelation is found to decline hyperbolically rather than exponentially as a function of the lag.