Currency Futures and Currency Crises

Arbeitspapier

Since financial derivatives are key instruments for risk taking as well as risk reduction, it is only straightforward to examine their role in currency crises. This paper addresses this issue by investigating the impact of currency futures trading on the underlying exchange rates. After a discussion of trading mechanisms and trader types, the linkage between futures trading activity and spot market turbulence is modelled using a VAR-GARCH approach for the exchange rates of Australia, Canada, Japan, Korea and Switzerland in terms of the US dollar. The empirical results indicate that there is a positive relationship between currency futures trading activity and spot volatility. Moreover, in the case of four out of the total of five currencies discussed in this paper, futures trading activity adds significantly to spot volatility.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Darmstadt Discussion Papers in Economics ; No. 136

Classification and Topics

• Classification: Wirtschaft ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Estimation: General ; Foreign Exchange ; International Financial Markets
• Subject: Currency crises ; Exchange rate volatility ; Currency futures trading activity ; VAR-GARCH estimation ; Devisentermingeschäft ; Wechselkurs ; Volatilität ; Währungskrise ; Devisenspekulation ; Schätzung ; Südkorea ; Australien ; Kanada ; Japan ; Schweiz

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Röthig, Andreas
• Event: Veröffentlichung
• (who): Technische Universität Darmstadt, Department of Law and Economics
• (where): Darmstadt
• (when): 2004

Further information

• Handle: http://hdl.handle.net/10419/22519
• Last update: 10.03.2025, 11:43 AM CET