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This sheds new light on
parallel market forces and synchronised price discovery characterising different markets
and investment categories. Furthermore, our study shows that realised volatility measures
in the spirit of e.g. Bollerslev and
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Andersen (1998)
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are able to proxy for the perceived
market risk and that transient market volatility has a significant role in determining the
price formation process of safehaven currencies.
Two main results emerge from our work.
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threehour horizon, the
Treasury note futures returns are only available for 4 of the 8 threehour intervals of a
day (and night), while the most of the other data is available for 7 or 8 intervals. To
avoid loosing to much data in the intraday regressions, we do two things. First, the lagged
Treasury note futures is excluded (that is,ˇ5in (2) is restricted to zero). Second, we
apply the
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Griliches (1986)
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twostep approach to handle the still missing data points of the
Treasury note futures. Effectively, this means that we estimate theˇ2coefficient in (2)
on the 4 threehour intervals with complete data, but the other coefficients on the 7 or 8
threehour intervals.
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Table 3reports results from estimating the regression equation (2) (with CHF/USD as
the dependent variable) for different horizons: from 3 hours up to 4 days. For the intraday
data we use a global equity series (NIKKEI, DAX, and S&P) instead of only S&P to
get an almost roundtheclock series (see Section 3) and apply the
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Griliches (1986)
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twostep approach to handle the still missing data points of the Treasury note futures (see
Section 4). The safe have effect is clearly visible on all these horizons, even if magnitude
of the coefficients of S&P and currency market volatility is considerably smaller at the
shorter horizons—and seem to peak around 1 to 2 days.
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The tstatistics are
based on a NeweyWest estimator with two lags. See Table 1 for details on the data. The
regressions on hourly data do not include the lagged Treasure notes futures as a regressor,
and apply
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Griliches (1986)
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twostep approach to handle the still missing data points for
the Treasury notes.
into the Swiss franc value at any time granularity. This suggests the genuine character for
the Swiss franc as a safe asset.
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