Röthig, Andreas (2004)
Currency futures and currency crises.
Report
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.
| Item Type: | Report |
|---|---|
| Erschienen: | 2004 |
| Creators: | Röthig, Andreas |
| Type of entry: | Bibliographie |
| Title: | Currency futures and currency crises |
| Language: | English |
| Date: | May 2004 |
| Place of Publication: | Darmstadt |
| Series: | Darmstadt Discussion Papers in Economics |
| Series Volume: | 136 |
| Collation: | 38 S. |
| URL / URN: | http://econstor.eu/bitstream/10419/22519/1/ddpie_136.pdf |
| 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. |
| Uncontrolled Keywords: | Currency crises; Exchange rate volatility; Currency futures trading activity; VAR-GARCH estimation |
| Additional Information: | JEL Classification: C13, C32, F31, G15 |
| Divisions: | 01 Department of Law and Economics 01 Department of Law and Economics > Volkswirtschaftliche Fachgebiete 01 Department of Law and Economics > Volkswirtschaftliche Fachgebiete > Fachgebiet Makroökonomie und Finanzmärkte |
| Date Deposited: | 19 Nov 2008 15:59 |
| Last Modified: | 03 Jun 2018 21:21 |
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