Exchange rate volatility, macroeconomic announcements and the choice of intraday periodicity filtering method

Filtering out the intraday periodicity of volatility is crucial for using high frequency data in econometric analysis. This paper studies the effects of filtering on statistical inference as regards the impact of news on exchange rate volatility. The properties of different methods are studied using a five-minute frequency EUR/USD data set and simulated returns. The simulation results suggest that all the methods tend to produce downward-biased estimates of news coefficients, some more biased than others. The study supports the Flexible Fourier Form method as the best for seasonality filtering.