Search results

The purpose of this paper is to present the essential role that currency order flow plays in the foreign exchange markets of emerging economies in the determination of their currencies in the short and the long-run against major currencies of the world, which cannot be over emphasized, most especially against the US dollar. Insomuch that, if some of these emerging economies can be successfully transmitted into full development, it would be a good model for other emerging economies and the world at large.

A hybrid model (portfolio shift model) proposed by Evans and Lyons (2002a, 2002b) is extended to analyze a data set of every quarter of an hour currency order flow and currency exchange rate fluctuations of Thai Baht (THB) against the US$ for the period of six years (January 2010 to December 2015). To reflect the pressure of currency excess demand, the authors construct a measure of currency order flow in the Thailand currency exchange market. Vector autoregression model is applied to estimate the effectual role of currency order flow in the determination of exchange rate for the THB against the US$.

Currency order flow indeed accounted for a sizeable and significant portion of the fluctuations in the THB and the US$ exchange rate.

Insomuch that, the results show that currency order flow has significant explanatory power in the emerging markets economy to capture the THB exchange rate variability, and it then brings to the attention of the Thailand Monetary Authority the importance that should be attached to the market microstructure.

This study aims to examine the dynamics between exchange rate and equities contextualizing the current liberal currency regime in China. This investigation also extends the analysis to explore the potential important factors influencing the interactions between these two markets. After exchange rate reforms, currency issue has emerged as a new dimension in portfolio decisions and diversification strategies in Chinese equity markets.

This research uses the dynamic conditional correlation generalized autoregressive conditional heteroskedasticity model proposed by Engle (2002) to explore the dynamic interactions between the currency and stock markets. Further, the paper uses regression analysis to explore the explanatory channels of the correlation. The sample comprises 1,265 listed companies over the period 2005-2012 with daily, weekly and monthly observations. To make analysis robust, the study also considers different exchange rates and equities belonging to different industries.

The findings suggest that exchange rate and stock price are related negatively. This conduit increases during the financial crisis period. This association is more prominent at monthly frequency than that of daily and weekly frequencies, which may refer to the noise factor in the high-frequency data. For a portfolio diversification point of view, currency may be considered an alternative diversifier against equity in China. The results also suggest a weak influence of market forces on the association between the currency and stock markets.

Much of the related past research is based on co-integration approaches and limited to the relationship between currency and equity markets without exploring the determining channels of this important connection. This study uses a more suitable approach to examine the topic and also investigates the determinants. Besides, previous studies take index data which may be poor to depict the overall market outlook. This paper proceeds with firm-level data which are more appropriate to expose the overall market outlook and investor behavior. This research also draws valuable implications.

The purpose of this paper is to estimate long-term currency exchange rate and also identify the key factors for decision makers in the currency exchange market. The study is expected to aid decision makers to take positions in the dynamic Forex market.

This study is based on quantitative and fundamental analysis of statistically oriented regression models. The trend of quarterly exchange rates is investigated using 110 variables including economic elements, interest rate and other currencies. This research is based on the same information that banks’ dealers use for the analysis. Ordinary least squares linear regression also known as “least squared errors regression” was used to estimate the value of the dependent variable.

The study concludes that “only Australian economic data” or “only the US economic data” cannot fully reflect the trend of AUD/USD. EUR influences AUD relatively larger than the other main market currencies. Six-month Australian interest rate itself affects AUD/USD trend much more than the six-month interest difference between AUD and USD.

The results indicate that the economic autoregressive moving average model can be used to predict future exchange rate using primary factors identified and not from the generic market or economic view. This helps adjust to the general, common (and possibly wrong) views when making a buy or sell decision.

This is one of the first studies in the context using the information of bank dealers for AUD/USD. This study is highly relevant in the current context, given the significant growth in Forex trade.

Offering an example of a small open developing economy, the purpose of this paper is to explore the reasons for relative stability in Armenia’s foreign exchange market. Relying on a single currency and derived cross-currency exchange rates, the paper models short-term effects between exchange market pressure and financial and macroeconomic factors.

Following a literature review, the paper sets the macroeconomic context with an initial variance comparison of standard currency pairs and derived cross-currency exchange rates. Then, the core analysis is carried out with a vector error correction model, focusing on short-term cross-dynamics in monthly data. The orthogonal impulse response function analyses help solidify and further inform relevant conclusions.

Three broad factors influence Armenia’s foreign exchange market: external push factors; domestic banking sector competition, and foreign currency risk perceptions; and domestic macroeconomic and dual, cross-pair, exchange rate target priorities. The central bank’s implicit management of the foreign exchange market’s expectations, pull factor, is consistent with trader market power’s contribution to lower volatility. Yet, the risk of financial and real-sector decoupling remains.

The results are relevant for emerging markets attempting to leverage the global liquidity and low interest rates, while being exposed to external pressures in the post-crisis environment, in which international reserves may be scarce while currency stability is an implied priority. This study can be further adapted to a more comprehensive structural short-term analysis of currency determination or similar dynamics in other small open economies.

The purpose of this study is to determine if intraday week (IDW) effect of the currencies reflect leverage and asymmetric impact in currencies market. The study data set comprises of intraday patterns of 15 currencies from developed and emerging economies.

The study applies the exponential generalized autoregressive conditional heteroscedasticity (E-GARCH) model technique to observe the IDW leverage and asymmetric effect after introducing hourly dummies variables, namely, IDWmon, IDWwed, IDWfrid and IDWfrid-mon.

The study results favor the propositions and confirm that IDW effect do exist in the international forex markets in relation to hourly trading pattern for respective currencies. Mostly, currencies do depreciate on Monday and Wednesday compared to the rest of the days. However, on the last trading day, i.e. Friday currencies observe an appreciation pattern which is for both economies. The results have an evidence of leverage and asymmetric effect confirmed by the E-GARCH model as a result of press releases and influence by micro-factors in the currency markets.

The study believes to have theoretical connection related to the better understanding of currencies trend for developed and emerging economies, as the IDW effect exists. Moreover, confirmation of both the leverage and asymmetric effect in observed currencies would be able to assist the investors in making rational choices during the trading hours and would confirm considerable profits through profit incentivized strategies.

The study not only add knowledge to the previous study work in relation to the hourly trading pattern of currencies with reference to the IDW effects but also highlights the leverage and asymmetric effect in currencies that will help in formulating future trading strategies particular to emerging economies.

Derivatives market has been epitomized with gross evil in the wake of the global economic crisis that ensued in 2008. This study argues for more extensive understanding of the phenomena as dynamics previously viewed unrelated now exhibit correlation. As empirical reference, this research relies on recent trends in the commodity futures contracts with analytical relation to the currency exchange rate and by extension the financial and real sectors. With varying intensity often speculative sporadic trading in crude oil, coffee, wheat, rice, sugar, and gold benchmark futures may inflict detrimental effects on the global development efforts. The issue is most acute in the emerging markets facing inflation fears, speculative movements of foreign currency-denominated funds, and underlying domestic currency value. This dynamic reasserts the concept of fundamental uncertainty allowing us to connect the typical risk-return stand with a dialectical unity of the financial, real sector, and social costs. Ultimately, issues raised in this study relate to the problems of social stability and sustained economic development in the postcrisis environment given high frequency and volatility of capital flows. As such, this chapter contributes to the literature that bridges financial empirical analysis with modern socially responsible economic development.

The authors analyze the relationship between exchange rate fluctuations of a number of major currencies and its impact on US stock market returns, as proxied by the S&P 500. Many studies have explored this topic since the early 1970s with varied results and with no evidence that clearly explains the relationship between exchange rates and stock market returns. This study takes a different look at this hypothesis and investigates the pairwise relationship between various exchange rates and the United States stock market returns (S&P 500 INDEX) from January 2000 to December 2019.

The authors test the data for unit roots using Phillip-Perron method. They use Johansen cointegration model to determine whether returns on S&P 500 are integrated with S&P 500. They use the VAR/VECM analysis to test whether there are any interdependencies between exchange rates and stock market return. Finally, they use various GARCH models, including the EGARCH and TGARCH models, to determine whether there exist volatility spillovers from exchange rate fluctuations in various markets to the volatility in the US stock market.

Using GARCH modeling, the authors find volatility in Australian dollar, Canadian dollar and the euro impact market return, and the volatility of Australian dollars and euro spills over to the volatility of S&P 500. They also find that the spillover is asymmetric for Australian dollars.

One of the limitations could be that the authors use different bivariate GARCH models rather than the MV-GARCH models. For future project(s), they plan to do this analysis from the perspective of a European Union or a British investor and use returns in those markets to see the impact of exchange rates on those markets. It would be interesting to know how the relationship will change during periods of financial crises. This could be achieved by employing structural break methodology.

Many studies have explored the relation between stock market returns and exchange rates since the early 1970s with varied results and with no evidence that clearly explains the relationship between exchange rates and stock market returns. This paper contributes by adding to the existing literature on impact of exchange rate on stock returns and by providing a detailed and different empirical analysis to support the results.

This paper investigates the dependence structure and market risk of the currency exchange rate portfolio from the Malaysian ringgit perspective.

The marginal return of the five major exchange rates series, i.e. United States dollar (USD), Japanese yen (JPY), Singapore dollar (SGD), Thai baht (THB) and Chinese Yuan Renminbi (CNY) are modelled by the Bayesian generalized autoregressive conditional heteroskedasticity (GARCH) (1,1) model with Student's t innovations. In addition, five different copulas, such as Gumbel, Clayton, Frank, Gaussian and Student's t, are applied for modelling the joint distribution for examining the dependence structure of the five currencies. Moreover, the portfolio risk is measured by Value at Risk (VaR) that considers the extreme events through the extreme value theory (EVT).

The finding shows that Gumbel and Student's t are the best-fitted Archimedean and elliptical copulas, for the five currencies. The dependence structure is asymmetric and heavy tailed.

The findings of this paper have important implications for diversification decision and hedging problems for investors who involving in foreign currencies. The authors found that the portfolio is diversified with the consideration of extreme events. Therefore, investors who are holding an individual currency with VaR higher than the portfolio may consider adding other currencies used in this paper for hedging.

This is the first paper estimating VaR of a currency exchange rate portfolio using a combination of Bayesian GARCH model, EVT and copula theory. Moreover, the VaR of the currency exchange rate portfolio can be used as a benchmark of the currency exchange market risk.

In many countries there is no free foreign exchange market. There exists an official exchange rate, and besides it — due to liberal law enforcement policies — a black market flourishes. One such country is Israel, where the black market exchange rate is commonly known, and the daily rate is published in newspapers. Since the establishment of the State several devaluations have taken place which raised the official exchange rate from IL0.333 per dollar in 1949 to IL6.00 in the middle of 1975. Except for the immediate periods after the devaluations the black market rate of exchange was significantly higher than the official one. However, while till 1962 the average difference between the two was about 45%, with a high variance of 36.3, it went down to less than 10% with much smaller variance of 11.2 since then. This reduction in the free market premium and its variability over time could partially be explained by more frequent changes in the official exchange rate, but part of it is probably a result of government intervention in the free foreign currency exchange market.