Search results for "Foreign exchange"
showing 10 items of 31 documents
Modeling foreign exchange market activity around macroeconomic news: Hawkes-process approach
2015
We present a Hawkes-model approach to the foreign exchange market in which the high-frequency price dynamics is affected by a self-exciting mechanism and an exogenous component, generated by the pre-announced arrival of macroeconomic news. By focusing on time windows around the news announcement, we find that the model is able to capture the increase of trading activity after the news, both when the news has a sizable effect on volatility and when this effect is negligible, either because the news in not important or because the announcement is in line with the forecast by analysts. We extend the model by considering noncausal effects, due to the fact that the existence of the news (but not…
Is Momentum in Currency Markets Driven by Global Economic Risk?
2015
This article investigates the potential link between momentum in currency returns and global economic risk as measured by currency return dispersion (RD). We find that the spread on zero-cost currency momentum strategies is larger and highly significant in high RD states compared to low RD states. Also, the relation between these momentum payoffs and global economic risk appears to increase linearly in risk. Further tests indicate that the same macroeconomic risk component in currency markets is present in global equity markets. Based on this evidence, we conclude that global economic risk as proxied by RD helps to explain currency momentum profits.
Are Momentum Crashes Pervasive Regardless of Strategy? Evidence from the Foreign Exchange Market
2016
This paper studies the option-like behavior of popular momentum strategies implemented in foreign exchange markets. The results confirm those of Daniel and Moskowitz (2013) in finding strong option-like behavior for both momentum measures, based on the cumulative return from 12 and 6 months prior to the formation date to one month prior to the formation date. Surprisingly, there is no such evidence for the popular momentum strategy accounting for a one-month formation period.
Stock market and exchange rate information in the Taylor rule : Evidence from OECD countries
2017
We analyze the effects of stock market and exchange rate information in a forward-looking Taylor rule for monthly data from 14 OECD countries during the years 1999–2016. Especially the stock market information in the form of dividend but also the currency market information in the form of real exchange rate are revealed to be relevant in Taylor rule for many of the countries examined by helping to strengthen the role of inflation and real economic activity deviations in the policy rule. In many cases the rule also seems to be opportunistic, i.e., the inflation target has been time-varying. peerReviewed
Media Tone Goes Viral: Global Evidence from the Currency Market
2020
Using several million news and social media articles related to currencies, we examine the role of media tone in predicting the exchange rate returns of 12 developed and 24 emerging markets from 1998 to 2016. The text-based currency Media tone is a strong positive predictor of currency excess returns beyond fundamentals of one to three months ahead and six months cumulatively, with the average in-sample and out-of-sample R^2s of 4.45% and 9.03% in the US. The one-month predictability is observed in four other developed markets and 18 emerging market currencies, with the latter showing a stronger pattern. This predictability encompasses previous month currency returns, currency factors, macr…
Causal flows between oil and forex markets using high-frequency data: Asymmetries from good and bad volatility
2019
The file attached to this record is the author's final peer reviewed version. The Publisher's final version can be found by following the DOI link. This paper investigates the causal linkages in volatility between crude oil prices and six major bilateral exchange rates against the U.S. dollar in the time-frequency space using high-frequency intraday data. Special attention is paid to the potential asymmetries in the causal effects between oil and forex markets. The wavelet-based Granger causality method proposed by Olayeni (2016) is applied to quantify the causal relations in the time and frequency domains simultaneously. Moreover, the realized semivariance approach of Barndoff-Nielsen et a…
Why FX Risk Management Is Broken - And What Boards Need to Know to Fix It
2015
In this paper we rethink the role of Foreign Exchange Risk Management (FXRM) in corporate management. We believe it is fair to characterize FXRM, on the whole, as a legacy activity rather than something that reflects a realistic cost-benefit analysis at the enterprise-level. The Board of Directors, as the designated guardians of the interests of shareholders, has a key role in setting the firm on a path towards a cost-efficient and centralized FXRM that preserves the firm’s transparency and predictability towards the investor community. A policy conclusion from our analysis is that responsibility for FX policy should shift from the traditional Finance/Treasury orientation to a group risk fu…
Portfolio performance and the Euro: Prospects for new potential EMU members
2008
Abstract Entering the EMU removes currency risk for assets originating in the Euro area while diversification opportunities are likely reduced. Taking the perspective of an investor in one of the 12 countries that joined the EU in 2004–2007, we contrast actual optimal composition of international equity holdings against two artificial scenarios: costless hedging against exchange rate risk and presuming the local market to be part of the EMU. State specific optimal portfolios are determined from realized covariances for the period 2000–2006. Optimized risk is found smaller under currency unification and implied Sharp ratios signal significant benefits of EMU participation.
Evaluating currency crises: the case of the European monetary system
2007
In this paper we examine the nature of currency crises. We ascertain whether the currency crises of the European Monetary System (EMS) were based either on fundamentals, or on self-fulfilling market expectations driven by extrinsic uncertainty. In particular, we extend previous work of Jeanne and Masson (J Int Econ 50:327–350, 2000) regarding the evaluation of currency crisis. We contribute to the existing literature proposing the use of Markov regime-switching with time-varying transition probability model. Our empirical results suggest that the currency crises of the EMS were not due only to market expectations driven by external uncertainty, or ‘sunspots’, but also to fundamental variabl…
Cross-border capital flows and information spillovers across the equity and currency markets in emerging economies
2021
This paper presents a novel perspective on the interaction between equity and currency markets in emerging market economies (EMEs) by (i) examining the nonlinear effects of capital flows on return spillovers between the stock and currency markets in a sample of twelve EMEs via the causality-in-quantiles approach of Balcilar et al., (2016), and (ii) providing a comparative analysis of the influence of debt versus equity flows over the spillover patterns. We show that the causal effects of international debt and equity flows on return spillovers across the equity and FX markets are largely concentrated at lower quantiles, suggesting that the arrival of information via capital flows tends to e…