Transaction costs have a first-order effect on the performance of currency portfolios. Proportional costs based on quoted bid–ask spread are relatively small, but when a fund is large, costs due to ...the trading volume price impact are sizable and quickly erode returns, leaving many popular strategies unprofitable. A mean–variance-transaction-cost optimized approach (MVTC) that accounts for costs in the optimization efficiently tackles the problem with only relatively minor negative implications on before-cost profitability. MVTC is robust even when the price impact of trading is severe. Finally, we introduce an accurate extrapolation approach to expand the sample of the realized Amihud measure of Ranaldo and Santucci de Magistris (2022) from 12 to 26 currencies and from 2012 back in time to 1986.
We test the bilateral causal relationship between four types of international capital flows and the real effective exchange rate (REER) in China over the period 1998:Q1 to 2016:Q2 and examine whether ...the link is time varying. Parameter stability tests suggest that the relationship between capital flows and the RMB REER is time varying both in the short and the long run. Bootstrap rolling-window causality tests suggest bidirectional Granger causal relationships between the current account, portfolio investments and FDI, and the REER in several sub-periods, and a Granger-causal relationship from foreign exchange reserves to the REER in some sub-periods.
The Varieties of Capitalism literature offers two competing hypotheses on institutional resilience. One argues that globalization promotes convergence towards a neo‐liberal system. Another stipulates ...that diverse capitalist regimes promote different comparative advantages, enabling diverse political economies to co‐exist. In this article, we argue that the compatibility of diverse models of capitalism is contingent upon monetary regime. We examine how different currency regimes influence the mutual co‐existence of export‐led growth models (euro core) and domestic demand‐led growth models (euro periphery). Under EMU, we find that these two models have become increasing incompatible, as unsustainable divergences in external balances have emerged between them. We hypothesize that external imbalances between these two growth regimes did not emerge prior to EMU because of the presence of two inflation adjustment mechanisms in the real exchange rate; the nominal exchange rate (in soft currency regimes) and national central banks’ promotion of inflation convergence (in hard currency regimes).
We use high frequency intra-day data to investigate the influence of unscheduled currency and Bitcoin news on the returns, volume and volatility of the cryptocurrency Bitcoin and traditional ...currencies over the period from January 2012 to November 2018. Results show that Bitcoin behaves differently to traditional currencies. Traditional currencies typically experience a decrease in returns after negative news arrivals and an increase in returns following positive news whereas Bitcoin reacts positively to both positive and negative news. This suggests investor enthusiasm for Bitcoin irrespective of the sentiment of the news. This phenomenon is exacerbated during bubble periods. Conversely, cryptocurrency cyber-attack news and fraud news dampen this effect, decreasing Bitcoin returns and volatility. Our results contribute to the discussion on the nature of Bitcoin as a currency or an asset. They further inform practitioners about the characteristics of cryptocurrencies as a financial asset and inform regulators about the influence of news on Bitcoin volatility, particularly during bubble periods.
•We investigate the impact of news sentiment on Bitcoin and traditional currency returns, volume and volatility.•We use high frequency 15-minute intra-day data.•We use Ravenpack to identify the sentiment of non-scheduled news around Bitcoin and six traditional currencies.•Bitcoin exhibits differing characteristics to foreign exchange.•We observe an enthusiasm for Bitcoin, with positive returns experienced irrespective of whether sentiment is positive or negative..
•We examine the relationship between oil price, prices of precious metals and exchange rate.•We use parametric and non-parametric modelling over a 135-year period.•We find evidence of non-linearity ...and asymmetries in the long-term.•Non-linear Granger causality suggests evidence of bidirectional and unidirectional causality.•The relationship between precious metal and oil prices is positive and increasing over time.
We examine the relationship between the oil price, prices of precious metals (gold, silver, and platinum) and the US dollar/British Pound exchange rate using parametric and non-parametric modelling over a 135-year period. For the parametric model, we employ a two-regime threshold vector error correction model (TVECM) and find non-linearity and asymmetries in the long-term relationship between the oil-gold price and oil-silver price pairs during the ‘typical regime’, in which the majority of observations lie. Non-linear Granger causality suggests evidence of bidirectional and unidirectional causality. For the non-parametric model, we employ Local Linear (LL) non-parametric regression to relax the assumptions regarding functional form. The relationship between the oil price and each of the precious metal prices and the exchange rate exhibit non-linearities. The relationship between precious metal prices and the oil price is positive and generally increasing over time, while the LL estimates for the exchange rate are negative and then positive and highly non-linear.
Global Financial Cycles and Risk Premiums Jordà, Òscar; Schularick, Moritz; Taylor, Alan M. ...
IMF economic review,
04/2019, Letnik:
67, Številka:
1
Journal Article
Recenzirano
Odprti dostop
This paper studies the synchronization of financial cycles across 17 advanced economies over the past 150 years. The comovement in credit, house prices, and equity prices has reached historical highs ...in the past three decades. While comovement of credit and house prices increased in line with growing real sector integration, comovement of equity prices has increased above and beyond growing real sector integration. The sharp increase in the comovement of global equity markets is particularly notable. We demonstrate that fluctuations in risk premiums, and not risk-free rates and dividends, account for a large part of the observed equity price synchronization after 1990. We also show that US monetary policy has come to play an important role as a source of fluctuations in risk appetite across global equity markets. These fluctuations are transmitted across both fixed and floating exchange rate regimes, but the effects are more muted in floating rate regimes.
I consider a small open economy model where international financial markets are imperfect and the exchange rate is determined by capital flows. I use this framework to study the effects of portfolio ...flow shocks, derive the optimal foreign exchange intervention policy, and characterize its interaction with monetary policy. I derive the optimal intervention rule in closed form as a function of three implicit targets. Finally, using Swiss data, I estimate the model to quantify the inefficiencies generated by capital flow shocks and the optimal size of the intervention.
We examine the long- and short-term effects of foreign exchange on Indonesia's external debts. Employing an autoregressive distributed lag (ARDL) bounds testing on quarterly data from 2010 to 2019 ...and testing for effect asymmetry, we found a long-run cointegrating relationship between the two variables. We also found a slow adjustment to an equilibrium state following a shock. Foreign exchange demonstrates a positive long-run effect on Indonesia's external debt, while in the short-run the effect is negative. Furthermore, we found an asymmetry in the elasticities of external debt with respect to rupiah-to-US dollar exchange rate fluctuations. The positive effect of Indonesian rupiah volatility on Indonesian external debt would be more severe when the rupiah appreciates against the dollar compared to a situation of rupiah depreciation. Therefore, although a depreciation of rupiah against the US dollar under a floating foreign exchange regime adopted by Indonesia since 1997 would in the long-run increase external debt, the impact is moderate. Any short-run movement of Indonesia's external debt following a shock would be pulled back to its long-run equilibrium path. We recommend that Indonesia should maintain a floating exchange regime and allow rupiah to depreciate at a moderate rate in the long-run.
Employing dynamic conditional correlation GARCH (DCC-GARCH) model, this paper analyzes spillover effects of the US economic policy uncertainty shock on real effective exchange rates with the data ...from January 2000 to December 2014. We find that the correlations between the US EPU and the returns of the high-yielding currencies are consistently negative throughout the sample period, while the correlation between the US EPU and the returns of Japanese yen is consistently positive. Moreover, we find that the correlations tend to be intensified during two post-2000 recession episodes.
•This paper investigates the spillover effects of US economic policy uncertainty on real effective exchange rates.•High-yielding currencies are negatively correlated with the US economic policy uncertainty.•By contrast, Japanese yen is positively correlated with the US economic policy uncertainty.•Those correlations tend to be intensified during the US recessions.
Using the recently launched Exporter Dynamics Database of the World Bank, this paper empirically investigates the role of external exchange rate risk (third-country effect) on trade flows between ...countries. We find a strong positive influence of external exchange rate risk on exports to a specific destination. However, the effect is more observable in advanced destination countries, countries with low bilateral exchange rate volatility in comparison to external exchange rate volatility, and countries in which export is concentrated among a small number of firms.
•We find that third-country exchange rate volatility has significant positive impact on export.•The effect is more observable in advanced than developing destination countries.•The effect is larger if bilateral volatility is smaller than the external volatility.•It also magnifies if export is concentrated among a small number of firms.
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