Trade deficit announcements and exchange rate volatility: Evidence from the spot and futures markets

Sultan, Jahangir

doi:10.1002/fut.3990140403

Cited by 11 publications

(8 citation statements)

References 21 publications

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“…In other words, the conflict-induced increase in the RMB volatilities was mitigated by China's retaliation measures. The literature suggests that trade deficit shocks typically increase the exchange rate volatility (Madura and Tucker, 1992;Sultan, 1994 andNeely, 2011). However, trade deficitincreasing and trade deficit-decreasing shocks may have asymmetric effects (Sultan, 1994).…”

Section: (Iii) the Us-china Trade Conflictmentioning

confidence: 99%

Volatility Transmission and Volatility Impulse Response Functions in the Main and the Satellite Renminbi Exchange Rate Markets

Funke

Loermann²,

Tsang³

2020

SSRN Journal

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Section: (Iii) the Us-china Trade Conflictmentioning

confidence: 99%

Volatility Transmission and Volatility Impulse Response Functions in the Main and the Satellite Renminbi Exchange Rate Markets

Funke

Loermann²,

Tsang³

2020

SSRN Journal

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“…The bivariate GARCH approach used here possesses several advantages, as it permits the investigation of the relevant issues without imposing restrictions on the direction of causality between the spot and futures markets, allows an examination of feedback effects between the spot and futures markets when new information arrives, and allows for cointegration between the spot and futures markets. For a discussion of the advantages of this methodology, see Sultan (1994). 13 As noted above, if two variables are cointegrated or move together in the long-run, there is an error-correction representation of this common relationship.…”

Section: The Standard Garch Modelmentioning

confidence: 99%

Foreign Exchange Volatility Shifts and Futures Hedging: An ICSS-GARCH Approach

Mansur

Cochran

Shaffer

2007

Rev. Pac. Basin Finan. Mark. Pol.

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In this study, the impact of volatility regime shifts on volatility persistence and hedge ratio estimation is determined for four major currencies using an iterated cumulative sums of squares (ICSS)-GARCH model. Employing a standard GARCH (1,1) model as the benchmark, within-sample results demonstrate that the inclusion of volatility shifts substantially reduces volatility persistence and the significance of the ARCH and GARCH coefficients. In terms of hedging effectiveness, the ICSS-GARCH model outperforms the standard GARCH model for all four currencies. In comparison to two constant volatility models, the standard GARCH model yields the lowest performance, whereas the ICSS-GARCH model performs at least as well as these models. In out-of-sample analysis, the GARCH model provides substantial variance reductions relative to the constant volatility models. Moreover, the ICSS-GARCH model yields positive variance reductions relative to all competing models, including the standard GARCH model. The results suggest that in cases where dynamic hedging is important, sudden shifts in volatility should not be ignored.1 There may be instances in which the objective is not to minimize the variance of a hedged portfolio. Regardless of the objective of the hedger, however, estimating hedged positions will usually involve estimation of variances and covariances. Motives for hedging can be found in Smith and Stulz (1985) and Froot et al. (1993). 2 If two variables are cointegrated, they will not drift "too far apart" and movements away from "equilibrium" will be corrected through a stationary or mean-reverting process. Ignoring cointegration if it exists implies that information relevant to the estimation is not being considered. Many studies subsequent to Engle and Granger (1987) have examined various issues associated with cointegration. See Hamilton (1994) for a lengthy literature survey on cointegration and error-correction and Watson (1994) for a survey paper on VARs and cointegration.Rev. Pac. Basin Finan. Mark. Pol.

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“…6 Öncül çalışmalar arasında Pruitt ve Wei (1992), Sultan (1994) ile Sheehan ve Wohar (1995)'dan da bahsedilebilir. Pruitt ve Wei (1992), doğrudan makroekonomik haberlerin anonslarının etkisi olmasa da makroekonomik haberlerden biri olan ABD ve Japonya'nın karşılıklı mal ticareti dengesi anonslarının, CME'de işlem gören dolaryen döviz futures kontratları üzerine etkisini incelemiş, bu karşılıklı anonsların önemli bilgisel olaylar olduğuna erişmişlerdir.…”

Section: Introductionunclassified

“…Pruitt ve Wei (1992), doğrudan makroekonomik haberlerin anonslarının etkisi olmasa da makroekonomik haberlerden biri olan ABD ve Japonya'nın karşılıklı mal ticareti dengesi anonslarının, CME'de işlem gören dolaryen döviz futures kontratları üzerine etkisini incelemiş, bu karşılıklı anonsların önemli bilgisel olaylar olduğuna erişmişlerdir. Sultan (1994), yine makroekonomik haberlerden bir tanesi olan ABD ticaret açığı anonslarının ABD doları-İngiliz poundu, ABD doları-Kanada doları, ABD doları-Alman markı, ABD doları-Japon yeni ve ABD doları-İsviçre frangı döviz spot ve futures piyasaları üzerine etkisini incelemiştir. Beklenilmeyen ticaret açığı anonsların hem spot hem de futures piyasada Kanada doları hariç diğer para birimleri karşısında ABD dolarının değerini azalttığı ve beklenilenin üzerinde bir açığın beklenenden küçük bir açığa göre daha büyük olasılıkla döviz kuru volatilitesinde bir artışa yol açacağına erişmiştir.…”

Section: Introductionunclassified

The Effects of US Macroeconomic News Announcements on Borsa Istanbul Stock Index Futures Market: An Analysis Based on High Frequency Data

Gök¹,

Topuz²

2017

Ekonomik Yaklasim

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Trade deficit announcements and exchange rate volatility: Evidence from the spot and futures markets

Cited by 11 publications

References 21 publications

Volatility Transmission and Volatility Impulse Response Functions in the Main and the Satellite Renminbi Exchange Rate Markets

Volatility Transmission and Volatility Impulse Response Functions in the Main and the Satellite Renminbi Exchange Rate Markets

Foreign Exchange Volatility Shifts and Futures Hedging: An ICSS-GARCH Approach

The Effects of US Macroeconomic News Announcements on Borsa Istanbul Stock Index Futures Market: An Analysis Based on High Frequency Data

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