This paper provides an analysis of the long-run relationships and short-run dynamics between stock prices and exchange rates as well as the channels through which exogenous shocks influence these ...markets. We use monthly data for the period January 1980 to February 2009 for four Latin America, namely, Argentina, Brazil, Chile and Mexico. We conduct our analysis by means of cointegration analysis and multivariate Granger causality tests. The main finding of our analysis suggests that stock and foreign exchange markets in these economies are positively related and that the U.S. stock market acts as a channel for these links. Moreover, it is shown that these links are independent of foreign exchange restrictions. Finally, stability tests proposed by
Hansen and Johansen (1993) are applied and it is shown that the dimension of the cointegration space is sample independent while the estimated coefficients exhibit instability in recursive estimations. Instability in these long-run relationships is evident during the Mexican currency crisis of 1994–1995, the Asian crisis of 1997 and the 2007–2009 credit and financial crisis.
I identify intraday jumps and cojumps in exchange rates controlling for volatility patterns and relate these events to pre-scheduled macroeconomic news and market conditions. Event study results show ...that preceding jump and cojump events, exchange rate quote volume, illiquidity, signed order flow, and informed trades are at heightened levels revealing that jump events are consistent with rational dealer quoting behavior. Following jump and cojump events, quote volume and return variance remain at heightened levels while illiquidity, informed trade, and signed order flow remain at depressed levels providing evidence that order flow following jump events is largely uninformed liquidity provision.
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I investigate the magnitudes and determinants of volatility spillovers in the foreign exchange (FX) market, using realized measures of volatility and heterogeneous autoregressive ...(HAR) models. I confirm both meteor shower effects (i.e., inter-regional volatility spillovers) and heat wave effects (i.e., intra-regional volatility spillovers) in the FX market. Furthermore, I find that conditional volatility persistence is the dominant channel linking the changing market states of each region to future volatility and its spillovers. Market state variables contribute to more than half of the explanatory power in predicting conditional volatility persistence, with the model that calibrates volatility persistence and spillovers conditionally on market states performing statistically and economically better. The utilization of market state variables significantly extends our understanding of the economic mechanisms of volatility persistence and spillovers and sheds new light on econometric techniques for volatility modeling and forecasting.
The main objective of the study is to investigate the bubble migration between foreign exchange and housing markets in Iran using seasonal data of 1966-1396. In this regard, bubble dating is ...discovered by using of Phillips et al (2015) method; then, bubble migration from the foreign exchange market to the housing market and from the housing market to the foreign exchange market is examined, using the Gomez-Gonzales et al. (2016) method. The results show that there are 7 bubble periods in the foreign exchange market; and 7 bubble periods in the Housing market. four hypotheses were defined for examine the bubble migration, according to the bubble dates (from the foreign exchange to housing market and vice versa). The results of the hypothesis testes showed that the first house bubble (2007Q2-2008Q3) led to the creation of the first bubble of the foreign exchange market (2007Q4-2008Q3). It seems that in the currency restriction conditions, the probability of creating a foreign exchange bubble and its migration to the housing market is rather high and vice versa.
We use non-temporal threshold analysis to investigate the exchange rate effects of large versus small interventions. More than two decades of official daily data on intervention in the JPY/USD market ...facilitate our analysis. We find no evidence that small interventions exert a discernible influence on the exchange rate while large interventions significantly influence the exchange rate in the theoretically consistent manner. We conclude that small interventions may not be considered a determinant of the exchange rate while large interventions constitute an important element in our understanding, and modeling, of the exchange rate.
This paper aims to examine the influence of the Ukraine invasion by Russia on Turkish markets, namely the Istanbul stock market index, Turkish real estate market index, Turkish gold market and ...Turkish foreign exchange market. This study used daily frequency data between February 24 and June 14, 2022. The variables used are BIST100, Turkey real estate index (XGMYO), Turkish gold commodity (XAU/TRY), Turkish foreign currency such as EURO/TRY, GBP/TRY, USD/TRY, TRY/UAH, TRY/RUB, and macro-economic variable RFR/TRY. The study employed Johansen cointegration, Impulse Response Functions and Markov-regime switching for the analysis. The findings established a long-run co-integration relationship among the Turkish markets. The finding also indicated that the shock from the Ukraine invasion by Russia has a positive effect on developed foreign currencies and a negative effect on currencies from emerging countries such as Turkey. The finding revealed that BIST100, XGMYO, and XAU/TRY shifted to regime 2 during the Ukraine invasion by Russia. The lack of need for more commodities such as wheat, gas and oil from the Turkish market prevented focusing on them, which may attract global attention. Despite this, the significance of this finding remains relevant in Turkey. Therefore, future research may focus on other markets with sufficient trading data for wheat and gas in Russia or Ukraine and any other countries of their study. This study established that Ukraine's invasion by Russia has a worldwide impact on the global markets. The effect is felt globally as a consequence, has been experienced across different developed and emerging markets due to the large market share of Russia on essential commodities such as gas and oil. Turkish foreign exchange markets experienced more storms during the Ukraine invasion by Russia even more than it was during the COVID-19 pandemic.
•Russia-Ukraine invasion impacts positive and negative effects on developed and emerging currencies.•Russia-Ukraine invasion has a worldwide impact on the global markets.•Russia-Ukraine invasion on Turkish exchange markets severe than the COVID-19 pandemic.
Import and export have been acknowledged for their beneficial effects on sustainable economic development. In the context of economic globalization, the dynamics of exchange rates are more critical ...and necessary to export success and sustainable development. Therefore, understanding the dynamics of exchange rates contributes to the achievement of export success so as to promote sustainable production. The aim of this research was to find out the dynamics of spreads in foreign exchange rates over 15 years and the systematic relationship between dynamics of spreads in foreign exchange rates and information arrival and dynamics of spreads and cost of carry. The multiple regression, dummy variable test, and vector autoregressive model show that most variations in the spreads result from relative spread rather than information arrival and cost of carry for the long term. The information arrival and cost of carry have almost no influence upon relative spread, even during the global financial crisis in 2008. This article suggests that exporters should pay more attention to the effects of relative spread rather than information arrival and cost of carry in the foreign exchange market when they carry out foreign trade.
Understanding the relationship and behavior of microstructures and exchange rates is an essential discussion for global foreign exchange investors. There are numerous research works regarding the ...linkage between order flow and exchange rates, yet the exact relationship between the order flow and the market price that indicates whether participants have an impact on the market trend remains undefined. This paper investigates the empirical association and behavior of order flow and the exchange rate movements within the time-frequency space, on three popular currency pairs, using the cross wavelet transform and wavelet transform coherency. The results indicate that order flow has a strong negative correlation and is the leader variable of the exchange rate. A predictor using order flow as an input variable was implemented to forecast the exchange rate direction using the sample data and out-of-sample data. This methodology, which performs with high accuracy and very low drawdown, could be a suitable tool for portfolio managers and forex participants during their trading activities.
•We explore the behavior of exchange rate and order flow for three currency pairs.•We apply the wavelet coherence for empirical analysis which obtains the co-movement in both time-frequency spaces.•Order flow shows high negative coherence with exchange rate.•Order flow as a powerful tool to forecast the exchange rate and leader of exchange rate in most of times.•The out of sample test shows the empirical test of our methodology in the real market.
