The Factor Structure of Exchange Rates Volatility: Global and Intermittent Factors

We propose a multi-level dynamic factor model to represent the commonalities in the hourly evolution of realized volatilities of several exchange rates. The model assumes a global factor active during the twenty-four hours of the day, plus four intermittent factors, associated with markets active during different parts of the day. We show that, although the bulk of the volatility dynamics can be attributed to a common factor active over the day, there are non-negligible effects of factors active over the time zones. The Covid-19 impact on the comovements of the factors appears only in the global factor.