Interdependence and dynamics in currency futures markets: A multivariate analysis of intraday data

This paper investigates long-term interdependencies and short-term dynamics in currency futures utilizing intraday data for six major foreign currencies: the British Pound, Deutsche Mark, Swiss Franc, Australian Dollar, Canadian Dollar, and Japanese Yen. Lack of cointegration (CI) among the foreign exchange futures is found to be the prevailing mode of behavior, but some temporary deviations from the no-CI condition are detected. There is a notable overlap between detected CI relationships and the timing of policy changes, world events, and regime shifts, indicating that the observed CIs are event-driven. The robustness of the CI results is checked with respect to variations in the model, lag structure, data period, sample horizon, and currency basket grouping. Impulse–response functions (IRFs) reveal that currency markets are in general efficient and absorb new information within the day. The interdependence among currencies is found to be asymmetric.     

本币升值背景下货币政策的国际比较及其启示

目前人民币处于升值过程中,这种情况与20世纪80年代中后期日本等国的情况有类似之处,本文将20世纪80年代中后期日本等国在本币升值背景下采取的货币政策进行了比较,总结了他们在本币升值时货币政策的得失,并提出了可供我国制定货币政策参考的若干建议。     

Zur Quantifizierung der Risikoprämien deutscher Versicherungsaktien im Kontext eines Multifaktorenmodells

In this contribution we present an empirical study that focuses on the relationship between risk and return for a universe of insurance Stocks in Germany during the period 1975–1998. The study was conducted using a multi factor model. The proportion of explained variance ranges from 9.29% to 13.62% in the monthly regressions. We found a significant and negative relationship between changes in the term structure of interest rates and the risk premiums for insurance Stocks. Also significant is the exchange rate of the Deutsche Mark against the US-Dollar.     

The Local Whittle Estimator of Long-Memory Stochastic Volatility

We propose a new semiparametric estimator of the degree of persistencein volatility for long memory stochastic volatility (LMSV) models.The estimator uses the periodogram of the log squared returnsin a local Whittle criterion which explicitly accounts for thenoise term in the LMSV model. Finite-sample and asymptotic standarderrors for the estimator are provided. An extensive simulationstudy reveals that the local Whittle estimator is much lessbiased and that the finite-sample standard errors yield moreaccurate confidence intervals than the widely-used GPH estimator.The estimator is also found to be robust against possible leverageeffects. In an empirical analysis of the daily Deutsche Mark/USDollar exchange rate, the new estimator indicates stronger persistencein volatility than the GPH estimator, provided that a largenumber of frequencies is used.     

Forecasting foreign exchange rates using idiosyncratic volatility

Average idiosyncratic stock volatility forecasts the bilateral exchange rates of the US dollar against major foreign currencies in and out of sample. The US dollar tends to appreciate after an increase in US idiosyncratic volatility. Similarly, ceteris paribus, German and Japanese idiosyncratic volatilities positively and significantly correlate with future US dollar prices of the Deutsche mark and the Japanese yen, respectively. Our results suggest that exchange rates are predictable.     

Modelling the Currency Forward Risk Premium: A New Perspective

In this paper we seek to develop a new approach to the time series analysis of foreign exchange risk premia. We do so by assuming a geometric Brownian process for the spot exchange rate and expressing the no-arbitrage spot-forward price relationship under the historical probability measure. We are thereby able to obtain a stochastic differential equation system linking the spot exchange rate, the forward exchange rate and the risk premium (modelled directly as a mean-reverting diffusion process) which we estimate using Kalman filtering techniques. We are able to use observations at a range of frequencies since the framework we set up does not involve overlapping observations. The model is then applied to the French Franc/USD, DEM/USD, GBP/USD, and Japanese Yen/USD exchange rates from 1 January 1990 to 31 December 1998. For all currencies we find evidence that the forward risk premium is stationary and exhibits substantial positive time variation.     

Macroeconomic news and exchange rates

This paper examines the relationship between macroeconomic news and the dollar–Mark and dollar–Yen exchange rates. We employ high-frequency observations for a 10-year period. We investigate whether exchange rate observations need to be sampled at a high frequency in order to detect significant effects from news announcements on mean returns and volatility. We examine the linearity and symmetry of the responses to news and also allow the effects of the news announcements to vary across states of the economy. We find that news indicating a stronger U.S. economy causes an appreciation of the U.S. dollar, that the responses are essentially complete within 5 min, and that measuring the responses over 6-h intervals eliminates the statistical significance of the news. The effects of news appear linear and symmetric but there is some evidence that the effects depend on the state of the economy.     

Corporate cash flow and stock price exposures to foreign exchange rate risk

This paper estimates the foreign exchange rate exposure of 6917 U.S. nonfinancial firms on the basis of stock prices and corporate cash flows. The results show that several firms are significantly exposed to at least one of the foreign exchange rates Canadian Dollar, Japanese Yen and Euro, and significant exposures are more frequent at longer horizons. The percentage of firms for which stock price and earnings exposures are significantly different is relatively low, though it increases with time horizon. Overall, the impact of exchange rate risk on stock prices and cash flows is similar and determined by a related set of economic factors.     

Expectations Hypotheses Tests

We investigate the expectations hypotheses of the term structure of interest rates and of the foreign exchange market using vector autoregressive methods for U.S. dollar, Deutsche mark, and British pound interest rates and exchange rates. We examine Wald, Lagrange multiplier, and distance metric tests by iterating on approximate solutions that require only matrix inversions. Bias-corrected, constrained VARs provide Monte Carlo simulations. Wald tests grossly overreject the null, Lagrange multiplier tests slightly underreject, and distance metric tests overreject. A common interpretation emerges from the small sample statistics. The evidence against the expectations hypotheses is much less strong than under asymptotic inference.     

Modelling the nonlinear relationship between oil prices,stock markets,and exchange rates in oil-exporting and oil-importing countries

This article investigates the multivariate dependence between oil prices, equity markets, and exchange rates in certain oil-importing and oil-exporting countries by applying the vine copulas approach which offers a greater flexibility and permits the modelling of complex dependency patterns for high-dimensional distributions. Our results show that the dependence between oil and exchange rates is significantly negative during different periods of analysis, except for the British Pound and Japanese Yen exchange rates. This result indicates that oil may serve as a weak hedge against exchanges rates.     

对中日货币直兑业务发展的思考——以辽宁省大连市为例

自2012年6月1日起,我国完善了银行间外汇市场人民币对日元交易方式,开始发展人民币对日元直接交易,日元成为继美元后第二个与人民币直接交易的主要货币。大连与日本的经贸联系紧密,此政策一出台,在连银行和企业均积极响应,表现出极大的关注。总体看,中日货币直兑开局良好,将对两国经贸关系产生深远影响,但短期内,政策时滞导致银行、企业的交易变化不大,将人民币、日元打造为主要结算货币仍存一些制约因素。本文在分析制约因素的基础上,提出一系列政策建议。     

Asian Financial Crisis.Prologue and the Case of Thailand

We suggest that the Asian financial crisis began because of theinconsistent exchange rate system and miss-management within Thailand. We showthat prior tothe Asian financial crisis the Thai Baht against the Yen followed the theoryofpurchasing power parity but the Baht against the U.S. Dollar did not. We givebriefsummaries of the papers included in this issue.     

Comovement of Exchange Rates: A Wavelet Analysis

In this article we investigate the behavior of exchange rates in Central and Eastern European countries. The results strongly indicate that interactions between exchange rates have different characteristics at different timescales. Our results show that CEE exchange rates are nearly perfectly integrated in the short and medium run, since the returns obtained in any of the CEE foreign exchange market can almost be explained by the overall performance in the other CEE markets. The discrepancies between CEE exchange rates are small, but increase within three to six months and that means in the long run the integration of foreign exchange markets is weak.     

外汇市场的定单流决定和影响汇率的理论与实证分析

本文从微观外汇市场结构的视角出发,借助于Evans和Lyons（2001）提出的微观外汇市场结构模型,详细剖析微观外汇市场汇率决定的核心变量一一定单流,指出其功能及在汇率决定中的应用。并分别利用美元与马克以及美元与人民币两个货币对的实际数据通过协整、误差修正模型以及最小二乘回归进行了验证,研究结果表明,人民币／美元汇率波动与定单流之间存在长期的均衡关系,但是整体来看人民币／美元定单流的解释能力没有马克／关元定单流的解释能力那么强,说明虽然我国目前已经具备了微观汇率决定理论的部分前提基础条件,但是,我国外汇市场市场机制完善程度较低是制约定单流功能发挥的重要原因。     

Testing for Serial Correlation in the Presence of Stochastic Volatility

This paper develops a regression-based testing procedure for serial correlation in the presence of stochastic volatility. The asymptotic distribution of the test is derived, and the finite sample properties are investigated. Monte Carlo results shows that the test is reliable in terms of both size and power performances, when the underlying process is a log-linear stochastic volatility. Moreover, the test is superior to Woolridge's (1991) robust LM tests in terms of size in finite sample. Serial correlation tests were conducted for nominal returns of ten exchange rates, and indicated that there is a strong evidence of serial correlation for Yen/Dollar exchange rates.     

Volume and Volatility in Foreign Currency Futures Markets

In this paper we propose and test several hypotheses concerning time series properties of trading volume, price, short and long-term relationships between price and volume and the determinants of trading volume in forcign currency futures. The nearby contracts for British Pound, Canadian Dollar, Japanese Yen, German Mark and Swiss Franc are analyzed in three frequencies i.e. daily, weekly and monthly.We find supportive evidence for all the five currencies that the price volatility is a determinant of the trading volume changes. Furthermore, the volatility of the price process is a determinant of the unexpected component of the changes in trading volume. Also, there is a significant relationship between the volatility of price and the volatility of trading volume changes for three of the five currencies in the daily frequency and for one currency in the monthly frequency.     

Why do central banks intervene?

Intervention by central banks, in terms of buying and selling foreign currency, has been a major activity in recent years. This paper investigates the motivations for such policy and the evidence for its effectiveness. We use high quality daily data on the dollar amounts of intervention by the central banks of the US and Germany. We also use information on agreed G7 target levels for the $/DM and $/Yen nominal exchange rates. Daily, nominal dollar exchange rate returns are well described as a Martingale-GARCH process, and we find little evidence that the different types of intervention have had much effect on the conditional mean of exchange rate returns. There is some evidence that intervention is associated with slight increases in the volatility of exchange rate returns. While little evidence is found for the effectiveness of intervention, the motivations are more clear. In particular, from the application of probit analysis we find that the probability of intervention is determined by the magnitude of the deviation of the nominal exchange rate from the agreed target level and, to a lesser extent, by the current volatility of exchange rates.     

Exchange rate determination and inter-market order flow effects

The dependence of foreign exchange rates on order flow is investigated for four major exchange rate pairs, EUR/USD, EUR/GBP, GBP/USD and USD/JPY, across sampling frequencies ranging from 5 min to 1 week. Strong explanatory power is discovered for all sampling frequencies. We also uncover cross-market order flow effects, e.g. GBP exchange rates are very strongly influenced by EUR/USD order flow. We proceed to investigate the predictive power of order flow for exchange rate changes, and it is shown that the order flow specifications reduce RMSEs relative to a random walk for all exchange rates at high-frequencies and for EUR/USD and USD/JPY at lower sampling frequencies.     

Are options redundant? Further evidence from currency futures markets

This paper investigates the impact of the introduction of options on the underlying asset's price formation process, using Geweke feedback measures. We derive the feedback measures from the Deutsche Mark, British Pound, Swiss Franc, Japanese Yen and Canadian Dollar futures and spot prices, before and after the introduction of options for these currency futures. While each currency market maintains some distinct characteristics in the post-option period, a common theme is found: after the option introduction, the instantaneous feedback between spot and futures markets improves drastically. The feedback from the spot to the futures market tends to decrease and remains small. The feedback from the futures market to the spot market tends to decrease as well. These results confirm the dominance of options markets, probably due to their smaller transaction costs. When made available, options assume a leading role for information transmission in currency markets.     

Risk appetite,carry trade and exchange rates

Using exchange rate data from four different countries (time zones), we examine the relationship between the Yen exchange rate against major currencies (i.e. USD/JPY, EUR/JPY, GBP/JPY, AUD/JPY and NZD/JPY) and measures of risk appetite (i.e. the S&P500 index, Dow Jones Industrial Average index and the VIX index). Our results show that the equity indexes, especially the Dow Jones Industrial Average, play a more important role in the determination of the Yen cross rates than VIX. The popular carry-trade currencies, i.e. NZD/JPY, AUD/JPY and GBP/JPY, are more affected by the US equity market than USD/JPY and EUR/JPY. While the long-term relationships are consistent across the four different time zones, the short-term dynamics are different. We find that the response of NZD/JPY, AUD/JPY and GBP/JPY to changes in the US stock market is much greater in the New Zealand and Australian zones than in the UK or US. Although the short-term relationship between exchange rates and the equity index is quite strong, the error correction speed is very sluggish. We also find evidence of asymmetric adjustment in the response of exchange rates to changes in global risk aversion. Carry trade currencies tend to appreciate gradually when conditions are favorable but fall sharply when market risk increases.