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Currency futures and currency crises

Röthig, Andreas :
Currency futures and currency crises.
[Online-Edition: http://econstor.eu/bitstream/10419/22519/1/ddpie_136.pdf]
In: Darmstadt Discussion Papers in Economics , 136 . Darmstadt
[Report], (2004)

Offizielle URL: http://econstor.eu/bitstream/10419/22519/1/ddpie_136.pdf

Kurzbeschreibung (Abstract)

Since financial derivatives are key instruments for risk taking as well as risk reduction, it is only straightforward to examine their role in currency crises. This paper addresses this issue by investigating the impact of currency futures trading on the underlying exchange rates. After a discussion of trading mechanisms and trader types, the linkage between futures trading activity and spot market turbulence is modelled using a VAR-GARCH approach for the exchange rates of Australia, Canada, Japan, Korea and Switzerland in terms of the US dollar. The empirical results indicate that there is a positive relationship between currency futures trading activity and spot volatility. Moreover, in the case of four out of the total of five currencies discussed in this paper, futures trading activity adds significantly to spot volatility.

Typ des Eintrags: Report
Erschienen: 2004
Autor(en): Röthig, Andreas
Titel: Currency futures and currency crises
Sprache: Englisch
Kurzbeschreibung (Abstract):

Since financial derivatives are key instruments for risk taking as well as risk reduction, it is only straightforward to examine their role in currency crises. This paper addresses this issue by investigating the impact of currency futures trading on the underlying exchange rates. After a discussion of trading mechanisms and trader types, the linkage between futures trading activity and spot market turbulence is modelled using a VAR-GARCH approach for the exchange rates of Australia, Canada, Japan, Korea and Switzerland in terms of the US dollar. The empirical results indicate that there is a positive relationship between currency futures trading activity and spot volatility. Moreover, in the case of four out of the total of five currencies discussed in this paper, futures trading activity adds significantly to spot volatility.

Reihe: Darmstadt Discussion Papers in Economics
Band: 136
Ort: Darmstadt
Kollation: 38 S.
Freie Schlagworte: Currency crises; Exchange rate volatility; Currency futures trading activity; VAR-GARCH estimation
Fachbereich(e)/-gebiet(e): 01 Fachbereich Rechts- und Wirtschaftswissenschaften
01 Fachbereich Rechts- und Wirtschaftswissenschaften > Volkswirtschaftliche Fachgebiete > Fachgebiet Makroökonomie und Finanzmärkte
01 Fachbereich Rechts- und Wirtschaftswissenschaften > Volkswirtschaftliche Fachgebiete
Hinterlegungsdatum: 19 Nov 2008 15:59
Offizielle URL: http://econstor.eu/bitstream/10419/22519/1/ddpie_136.pdf
Zusätzliche Informationen:

JEL Classification: C13, C32, F31, G15

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