The crisis in the foreign exchange market Melvin, Michael; Taylor, Mark P.
Journal of international money and finance,
12/2009, Letnik:
28, Številka:
8
Journal Article
Recenzirano
Odprti dostop
We provide an overview of the important events of the recent global financial crisis and their implications for exchange rates and market dynamics. Our goal is to catalogue all that was truly of ...major importance in this episode. We also construct a quantitative measure of crises that allows for a comparison of the current crisis to earlier events. In addition, we address whether one could have predicted costly events before they happened in a manner that would have allowed market participants to moderate their risk exposures and yield better returns from currency speculation.
Modifying Hakim, Arief; Salman, A. N. M; Ashari, Yeva ...
PloS one,
11/2022, Letnik:
17, Številka:
11
Journal Article
Recenzirano
In a financial system, entities (e.g., companies or markets) face systemic risk that could lead to financial instability. To prevent this impact, we require quantitative systemic risk management we ...can carry out using conditional value-at-risk (CoVaR) and a network model. The former measures any targeted entity's tail risk conditional on another entity being financially distressed; the latter represents the financial system through a set of nodes and a set of edges. In this study, we modify CoVaR along with its multivariate extension (MCoVaR) considering the joint conditioning events of multiple entities. We accomplish this by first employing a multivariate Johnson's SU risk model to capture the asymmetry and leptokurticity of the entities' asset returns. We then adopt the Cornish-Fisher expansion to account for the analytic higher-order conditional moments in modifying (M)CoVaR. In addition, we attempt to construct a conditional tail risk network. We identify its edges using a corresponding Delta (M)CoVaR reflecting the systemic risk contribution and further compute the strength and clustering coefficient of its nodes. When applying the financial system to global foreign exchange (forex) markets before and during COVID-19, we revealed that the resulting expanded (M)CoVaR forecast exhibited a better conditional coverage performance than its unexpanded version. Its superior performance appeared to be more evident over the COVID-19 period. Furthermore, our network analysis shows that advanced and emerging forex markets generally play roles as net transmitters and net receivers of systemic risk, respectively. The former (respectively, the latter) also possessed a high tendency to cluster with their neighbors in the network during (respectively, before) COVID-19. Overall, the interconnectedness and clustering tendency of the examined global forex markets substantially increased as the pandemic progressed.
Cryptocurrencies has been considered as both an investment tool and a great invention that will replace money and change the world order. Although crypto currency trading has been investigated in ...many aspects, the psychological dimension that directly affects investors has often been ignored. Control of cryptocurrency trading is in the hands of investors rather than a central authority or institution. Thus, the value of cryptocurrencies changes with the reactions of investors. This situation suggests that psychological factors may be more prominent in cryptocurrency trading. Cryptocurrency trading has many similarities with gambling and betting, such as risk taking, getting quick returns, extreme gains or losses. Some significant components of behavioral addiction are also seen in individuals who spend so much time with cryptocurrency trading. The purpose of this article is to provide a better understanding of the psychological effects of cryptocuurency trading, which has entered our lives over a relatively brief period of time and reached millions of investors. Keywords: Pathological gambling, dependency, addiction medicine, mental health Kripto paralar hem bir yatirim araci hem de paranin yerini alacak ve dünya düzenini degistirecek büyük bir icat olarak görülmektedir. Pek çok yönüyle arastirilan kripto para ticaretinin, yatirimcilari dogrudan etkileyen psikolojik boyutu genellikle göz ardi edilmistir. Kripto para ticaretinin kontrolü, merkezi bir otorite ya da kurumdan ziyade yatirimcilarin elindedir. Böylece kripto paralarin degerleri, yatirimcilarin hareketleriyle degisiklik göstermektedir. Bu durum, kripto para ticaretinde psikolojik faktörlerin daha ön planda olabilecegini düsündürmektedir. Risk alma, hizli sonuç elde etme, tutarsiz kazanç ya da kayip gibi özellikleriyle kripto para ticareti, kumar ve bahis ile birçok benzerlige sahiptir. Kripto para ticareti ile yogun sekilde ugrasan bireylerde davranissal bagimliligin bazi önemli bilesenleri de görülmektedir. Bu makalenin amaci, hayatimiza kisa sürede girerek milyonlarca yatirimciya ulasan kripto para ticaretinin psikolojik yansimalarinin daha net biçimde anlasilmasini saglamaktir. Anahtar sözcükler: Patolojik kumar oynama, bagimlilik, bagimlilik tibbi, ruh sagligi
•This study analyzes BRICS countries’ long-term exchange rate market efficiency.•The results show considerable differences in BRICS countries’ exchange rate efficiency.•South African currency is the ...most efficient and China the least efficient during the study period.•We attribute the Chinese currency's lower efficiency to the fact that exchange market reform happened in China many years after it did in the other countries.•After a country shifts to a more flexible type of exchange rate regime, the efficiency of its price behavior improves, but this improvement takes time.
In this paper, we analyze BRICS countries’ long-term exchange rate market efficiency. Our analysis, using multifractal detrended fluctuation analysis (MFDFA) for the 2009–2021 period, shows considerable differences in the exchange rate efficiency of BRICS countries, with South Africa the most efficient and China the least efficient. Based on daily exchange rates, our analysis shows that after a country shifts to a flexible exchange rate regime, the price efficiency of its currency improves, but not immediately. All the BRICS countries show improvements in market efficiency over the 13-year period of our study. The adaptive market hypothesis supports our finding of efficiency improvements over time more than the efficient market hypothesis does.
We estimate the effect of sovereign credit rating events on the foreign exchange market. Using entropy balancing—a treatment effect methodology that properly addresses the possible self‐selection and ...endogeneity biases related to rating events—we find robust evidence that a positive (negative) sovereign credit rating event significantly increases (decreases) on average exchange rates, with a larger magnitude for negative events. This effect remains significant under flexible (but not under fixed) exchange rate regimes, and displays asymmetries related to the size of the rating event: in particular, only negative large (i.e., above one notch) rating events trigger a significant response of exchange rates. Lastly, we unveil important nonlinearities related to the initial value of the rating, suggesting a possible amplification mechanism: the impact of positive (negative) rating events is stronger in absolute value if ratings are initially high (low).
By analyzing the foreign exchange market data of various currencies, we investigate the topology of correlation networks among 45 major currencies using the minimal spanning tree (MST) and the planar ...maximally filtered graph (PMFG). Besides the geographical location, our paper uses interest rates as another labeling criterion to analyze the currency network. Some conclusions are given: the mean values of the correlation coefficients dropped dramatically in economic crisis, such as September 2008 and March 2020. Also, the overall correlation between currencies has gradually weakened in recent years; When interest rate is used as the labeling criteria, the currencies of countries with low interest rates are mostly surrounded by the EUR; The PMFG method contains more links that are filtered in the MST and displays different results on degree centrality analysis, providing complementary information for the MST result; the Commonwealth cluster is also found. Our findings can help to discover the economic cycles and market crashes by studying topological and statistical properties of the currency network.
•Our study focuses on two financial crises, especially during the Covid-19 pandemic.•MST and PMFG are used to study the topological structures of the FX market.•The PMFG method can provide complementary information for MST.•Another labeling criterion, interest rate, is introduced to analyze the result.•The robustness check in the study of complex networks is also performed.
We respecify the uncovered interest rate parity (UIP) conditions by inverting the market price of the risk (Sharpe ratio) formula. Our empirical model provides new insight indicating that violations ...to the UIP stem from the existence of a risk premium in the exchange rates and from observed market return differentials being a noisy statistic of the markets' expected return differentials in our respecified model. Using an integrated macro-micro structure framework for expected market return differentials improves our model fit and the validity of UIP.
PurposeThe purpose of this study is to investigate the effects of uncertainty, namely, macroeconomic uncertainty (MU) and financial uncertainty (FU) on foreign exchange market stability, specifically ...on foreign exchange market pressure (EMP) and jump risk (RJV).Design/methodology/approachThe latent threshold time-varying parameter VAR (LT-TVP-VAR) econometric approach is used in estimations to solve structural breaks.FindingsThe relationship of uncertainties and China's foreign exchange market stability is latent threshold nonlinear dynamic time-varying. In China's renminbi (RMB) appreciation stage, both MU and FU weaken the appreciation pressure of RMB. Moreover, MU and FU significantly increase the RJV, while MU significantly affects the RJV of the foreign exchange market. In the RMB depreciation stage, both MU and FU strengthen the EMP.Research limitations/implicationsFindings based on data in China's foreign exchange market can be considered for other global markets in future research.Practical implicationsAn increase in MU and FU has a negative effect on foreign exchange stability. Regulators can prevent the economic system uncertainty shocks on foreign exchange market stability through observation and judgment of MU and FU, which helps prevent and relieve financial risks. Investors can reduce foreign exchange risk as the exchange rate rebounds after hedging behavior during high uncertainty periods.Originality/valueThe effect of MU on the foreign exchange market stability is greater than that of FU, regardless of whether EMP or RJV occurs in the foreign exchange market.
We investigate the impacts of geopolitical risks (GPRs) on financial stress (FS) in major emerging economies from 1985 to 2019. Applying a recently developed panel quantile estimation method, we show ...that GPRs pose serious risks to the stability of the financial condition in emerging economies. Namely, when FS is already equal to or above average, GPRs intensify this instability to a remarkable degree. Nevertheless, GPRs do not ignite the stress when the financial situation is benign. In emerging economies, foreign exchange markets and, to a lesser extent, the banking industry and the debt market suffer more severe consequences of geopolitical tensions than the stock market. In contrast, advanced economies, represented by the Group of Seven (G7), have witnessed detrimental consequences of GPRs on their stock markets, but negligible effects on other parts of their financial systems.
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