Information and volatility links in the foreign exchange market

Accounting and Finance (Impact Factor: 0.65). 06/2009; 49(2):385-405. DOI: 10.1111/j.1467-629X.2009.00287a.x
Source: RePEc


We apply the trading model of Fleming "et al" (1998). to a number of currency markets. The model posits that two markets can have common volatility structures as a result of receiving common information and from cross-hedging activity where a position in one currency is used to hedge risk in a position taken in another. Our results imply that the model is effective in identifying common information flows and volatility spillovers in the currency markets and that some of these effects are lost when simply examining raw correlations. A series of specification tests of the 21 bivariate systems that are examined provides support for the trading model in the foreign exchange context. Copyright (c) The Authors. Journal compilation (c) 2009 AFAANZ.

4 Reads
  • [Show abstract] [Hide abstract]
    ABSTRACT: We apply the Structural Vector Autoregressive (SVAR) model to study the cross market volume-return-volatility (VRV) dynamics among Deutsch Mark (DEM), Japanese Yen (JPY) and Indonesian Rupiah (IDR) in the FX Spot market during the 1997 Asian Currency Crisis. We find that the "within-among" SVAR framework, which accounts for both inner and inter market interactions, can detect more of the VRV causalities in currency markets than the traditional approach does. In addition, by using Partial Directed Coherence (PDC) analysis, we decompose the errors and uncover the impulse response patterns of the SVAR system.
  • [Show abstract] [Hide abstract]
    ABSTRACT: This paper explores whether volatility linkages exist at the intra-daily frequency in the foreign exchange market, and whether market trading hours affect volatility transmission. To answer these questions, we apply the Fleming, Kirby and Ostdiek model (1998) to 21 currency pairs using hourly data and allowing specific consideration to be given to the role of which market is open in driving volatility linkages. Our findings indicate that hourly volatility is less persistent than daily volatility. We also find that market trading hours play a different role in driving volatility linkages for major and non-major currencies. For major currency pairs, we find that simultaneous trading hours are not critical for the processing of information flow. However, for the other currency pairings volatility transmission is affected by which markets are open.
    Australian Journal of Management 04/2012; 37(1):7-27. DOI:10.1177/0312896211411934 · 0.38 Impact Factor
  • [Show abstract] [Hide abstract]
    ABSTRACT: This paper studies cross-market herding of speculators in the Canadian dollar, Swiss francs, British pound and Japanese yen futures markets from 6 October 1992 to 26 January 2010. The relations between (i) total speculation (long plus short), (ii) long speculation and (iii) short speculation are investigated. The empirical results present strong evidence of short-run causal relationships between speculative activities in currency futures markets. There is a significant feedback effect (bidirectional causality) between each pair of total speculation. In addition, impulse response analysis points to positive interrelations between speculative trading activity and therefore to cross-market herding. Copyright © 2011 John Wiley & Sons, Ltd.
    International Journal of Finance & Economics 07/2012; 17(3). DOI:10.1002/ijfe.462 · 0.33 Impact Factor