In this paper we analyze high-frequency movements in Swiss asset markets in reaction to real-time communication by the Swiss National Bank. Our analysis of central bank communication encompasses ...monetary policy announcements, speeches and interviews. We examine the reactions of the currency market, the bond market and the stock exchange. The evidence suggests that speeches and interviews, along with monetary policy announcements, engender a significant price reaction. This paper sheds light on the relevance of communications other than monetary policy announcements.
This paper contributes to technical analysis (TA) literature by showing that the high and low prices of equity shares are largely predictable only on the basis of their past realizations. Moreover, ...using their forecasts as entry/exit signals can improve common TA trading strategies applied on US equity prices. We propose modeling high and low prices using a simple implementation of a fractional vector autoregressive model with error correction (FVECM). This model captures two fundamental patterns of high and low prices: their cointegrating relationship and the long-memory of their difference (i.e., the range), which is a measure of volatility.
We define risk spillover as the dependence of a given asset variance on the past covariances and variances of other assets. Building on this idea, we propose the use of a highly flexible and ...tractable model to forecast the volatility of an international equity portfolio. According to the risk management strategy proposed, portfolio risk is seen as a specific combination of daily realized variances and covariances extracted from a high frequency dataset, which includes equities and currencies. In this framework, we focus on the risk spillovers across equities within the same sector (sector spillover), and from currencies to international equities (currency spillover). We compare these specific risk spillovers to a more general framework (full spillover) whereby we allow for lagged dependence across all variances and covariances. The forecasting analysis shows that considering only sector- and currency-risk spillovers, rather than full spillovers, improves performance, both in economic and statistical terms.
•We characterize and model risk spillovers in an international portfolio.•We introduce a model parameterization where risk spillovers can be tested.•We provide an empirical application of our approach.
We compare the market quality of centralized crypto exchanges (CEXs) such as Binance and Kraken to decentralized blockchain-based venues (DEXs) such as Uniswap v2 and v3. After discussing the ...microstructure of such exchanges, we analyze two key aspects of market quality: transaction costs and deviations from the no-arbitrage condition. We find that CEXs and DEXs operate on roughly equal footing in terms of transaction costs, particularly in light of recent innovations in DEX protocols. Moreover, while CEXs provide superior price efficiency, DEXs eliminate custodian risk. These complementary advantages may explain why both market structures coexist.
By investigating nonfungible tokens (NFTs), we provide the first systematic study of retail investor behavior through asset bubbles. Given that NFTs are recorded in public blockchains, we are able to ...track investor behavior over time, leading to the identification of numerous price run-ups and crashes. Our study reveals that agent-level variables, such as investor sophistication, heterogeneity, and wash trading, in addition to aggregate variables, such as volatility, price acceleration, and turnover, significantly predict bubble formation and price crashes. We find that sophisticated investors consistently outperform others and exhibit characteristics consistent with superior information and skills, supporting the narrative surrounding asset pricing bubbles.
Does global currency volume increase on Federal Open Market Committee (FOMC) days? To test hypotheses of abnormal currency volume on FOMC days, a new data set from the Continuous Linked Settlement ...(CLS) Bank is used. The CLS measure captures more than half of the global trading volume in foreign exchange (FX) markets. The evidence shows that FX trading volume increases about 5% in the spot and the spot-next market following FOMC deliberations. The novelty of this result is that the aggregated CLS data controls for responses in various derivatives markets: a feature that existing studies based on intradaily data for specific trading platforms do not consider.
Models for realized covariance matrices may suffer from the curse of dimensionality as more traditional multivariate volatility models (such as GARCH and stochastic volatility). Within the class of ...realized covariance models, we focus on the Wishart specification introduced by C. Gourieroux, J. Jasiak, and R. Sufana 2009. The Wishart autoregressive process of multivariate stochastic volatility. Journal of Econometrics 150, no. 2: 167-81 and analyze here the forecasting performances of the parametric restrictions discussed in M. Bonato 2009. Estimating the degrees of freedom of the realized volatility Wishart autoregressive model. Manuscript available at
http://ssrn.com/abstract=1357044
, which are motivated by asset features such as their economic sector and book-to-market or price-to-earnings ratios, among others. Our purpose is to verify if restricted model forecasts are statistically equivalent to full-model specification, a result that would support the use of restrictions when the problem cross-sectional dimension is large.
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