Overnight exchange rate risk based on multi-quantile and joint-shock CAViaR models |
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| Institution: | 1. School of Finance, Zhongnan University of Economics and Law, 182# Nanhu Avenue, East Lake High-tech Development Zone, Wuhan 430-073, PR China;2. School of Economics, Fudan University, 220# Handan Road, Yangpu District, Shanghai 200-433, PR China;1. Konkuk University, Department of Business Administration, 120 Neungdong-ro, Gwangjin-gu, Seoul, 05029, South Korea;2. Korea Housing & Urban Guarantee Corporation, 10F, BIFC, Munhyeongeumyungro 40, Nam-gu, Busan, 48400, South Korea;1. Department of Economics, Tunghai University, No. 1727, Sec. 4, Xitun Dist., Taiwan Boulevard, Taichung, 40704, Taiwan;2. Department of Accounting, Feng Chia University, Taiwan;1. Department of Economics, 364 FCBE, University of Memphis, Memphis, TN 38152, USA;2. Department of Economics, 432 FAB, University of Memphis, Memphis, TN 38152, USA;1. Department of Logistics Management, National Kaohsiung University of Science and Technology, 1, University Rd., Yanchao Dist., Kaohsiung City 824, Taiwan;2. Department of Business Administration, Fu Jen Catholic University, Taiwan;3. Department of Risk Management and Insurance, Risk and Insurance Research Center, College of Commerce, National Chengchi University, 64, Sec. 2, Zhi-Nan Road, Wen-Shan District, Taipei 11605, Taiwan;4. Department of Leisure and Sports Management, Far East University, 49, Zhonghua Rd., Xinshi Dist., Tainan City 74448, Taiwan;1. Universidad de Zaragoza, Spain;2. Banco de España, Spain;1. Tasmanian School of Business and Economics, University of Tasmania, Australia;2. Centre for Applied Macroeconomic Analysis, Australian National University, Australia;3. Department of Econometrics and Business Statistics, Monash University, Australia |
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| Abstract: | Overnight risk of exchange rate is more and more important because the exchange rate trading time of various countries is inconsistent. Drawing on the multi-quantile CAViaR model for two markets, this study proposes a multi-quantile CAViaR model for three markets and a multi-quantile CAViaR model for joint shock. The two new models are used to measure the impact of the U.S. Dollar index and the Euro on the overnight risk for the exchange rate of the Japanese Yen, Hong Kong Dollar, and Chinese Renminbi. The results show that, first, a lag risk affects the overnight risk of the three exchange rates, of which the Renminbi exchange rate is subject to the largest risk. Second, the U.S. Dollar index and Euro exchange rate risks impact the overnight risk of the three exchange rates and this effect is highest for the overnight risk of the Yen's exchange rate. In addition, the impact of the U.S.Dollar index risk is greater than that of the Euro. Third, the Euro and U.S.Dollar index produce a joint shock on the overnight risk of the three exchange rates, and here, the Yen's exchange rate suffers the biggest shock. Finally, the multi-quantile CAViaR model for joint shock is more accurate than that for three markets, particularly when the Hong Kong Dollar exchange rate has a 5% VaR. These empirical results have meaningful implications for regulatory authorities. |
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| Keywords: | Value at risk Exchange markets Overnight risk C13 C14 C32 G10 |
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