What drives volatility persistence in FX market?

The Federal Reserve Board Discussion Paper "What drives volatility persistence in the foreign exchange market?" published May 2006 analyses the factors driving the widely-noted persistence in asset return volatility using a unique dataset on global euro-dollar exchange rate trading.

The authors propose a new simple empirical specification of volatility, based on the Kyle-model, which links volatility to the information flow, measured as the order flow in the market, and the price sensitivity

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