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I'm not very fluent in the quant vernacular, so perhaps the nature of my question will be better illustrated as a hypothesis.

One market has closed and another market elsewhere on Spaceship Earth is opening. For example, the Nikkei opens at 7pm Eastern time, a few hours after NYSE has closed. Let's hypothesize that there's a higher demand for JPY from USD holders during this interval than any other interval during the day, and consequently there is a greater probability of profiting from a buy & sell of JPY during this interval than other intra-day interval.

What kind of statistical analysis would you do to test this hypothesis?

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I see no one has replied. Just a couple of questions. Does your hypothesis "Let's hypothesize that ..." actually hold? How can one know the volumes traded on the FOREX? And, why would 'higher demand for JPY' translate in 'greater probability of taking advantage of the market? –  edouard Apr 27 '13 at 13:48
    
Thanks for asking. I guess I'm asking two questions at once; (1) how would you assess if the price of a currency/stock/whatever tends to have greater volatility during a certain time of day, and (2) if you identify such an interval, how would you assess the direction of the price movement? –  simmbot Apr 27 '13 at 20:23
    
I think this paper may help answer question (1). What do you think? "A seasonal GARCH model is developed to describe the time-dependent volatility apparent in the precentage nominal return of each currency. Hourly patterns in volatility are found to be remarkably similar across currencies and appear to be related to the opening and closing of the worlds major markets." public.econ.duke.edu/~boller/Published_Papers/restud_91.pdf –  simmbot Apr 27 '13 at 20:27
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