Volatility of exchange rate futures and high-low price spreads |
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Authors: | An-Sing Chen |
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Institution: | (1) Department of Finance, National Chung Cheng University, 621 Chia-Yi, Taiwan |
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Abstract: | This study explores the time-series behavior and the predictability of daily percentage changes in the Japanese Yen futures
contracts. The relationship between currency futures volatility and high-low price spreads in the Japanese Yen futures contracts
is examined. In addition, this study explores the issue of first- and second-order dependencies in the Japanese Yen futures
contract prices changes, address the issue of asymmetric volatility, and examine the extent to which the information contained
in the high-low price spreads can be used to predict future Japanese Yen currency futures contract price changes. The analysis
is carried out using the EGARCH model. The volatility of the Japanese Yen currency futures price changes is adequately modeled
by an EGARCH process and is predictable using information contained in the high-low price spread variables constructed in
this study. This study also finds a positive and significant relationship between the spread variable and the conditional
mean of price changes, suggesting that current information contained in the spread variable can be used to predict future
Japanese Yen currency futures contract price changes. The hypothesis that volatility is an asymmetric function of past innovations
is confirmed. |
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Keywords: | |
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