Volatility of exchange rate futures and high-low price spreads

This study explores the time-series behavior and the predictability of daily percentage changes in the Japanese Yen futures contracts. The relationship between currency futures volatility and high-low price spreads in the Japanese Yen futures contracts is examined. In addition, this study explores the issue of first- and second-order dependencies in the Japanese Yen futures contract prices changes, address the issue of asymmetric volatility, and examine the extent to which the information contained in the high-low price spreads can be used to predict future Japanese Yen currency futures contract price changes. The analysis is carried out using the EGARCH model. The volatility of the Japanese Yen currency futures price changes is adequately modeled by an EGARCH process and is predictable using information contained in the high-low price spread variables constructed in this study. This study also finds a positive and significant relationship between the spread variable and the conditional mean of price changes, suggesting that current information contained in the spread variable can be used to predict future Japanese Yen currency futures contract price changes. The hypothesis that volatility is an asymmetric function of past innovations is confirmed.