trading patterns and prices in the interbank foreign exchange market the behavior of quote arrivals and bid ask spreads is examined for continuously recorded deutsche mark dollar exchange rate data over time across locations and by market participants a pattern in the intraday spread and intensity of market activity over time is uncovered and related to theories of trading patterns models for the conditional mean and variance of returns and bid ask spreads indicate volatility clustering at high frequencies the proposition that trading intensity has an independent effect on returns volatility is rejected but holds for spread volatility conditional returns volatility is increasing in the size of the spread there is a growing body of theoretical studies on the pattern of trading activity in financial markets with implications for the time series behavior of transactions prices and intensity of trading the empirical literature addressing similar concerns using intraday market data appropriate for such tasks is sparse particularly in the area of the trading of currencies the purpose of this paper is to examine both international patterns of intraday trading activity and the time series properties of returns and bid ask spreads for the deutsche mark dollar exchange rate in the interbank foreign exchange market the goal is to provide information useful in the further development of market microstructure models of trading and to compare empirical findings against theoretical results already in existence the foreign exchange market is in operation twenty four hours a day seven

answering the skeptics yes standard volatility models do provide accurate forecasts a voluminous literature has emerged for modeling the temporal dependencies in financial market volatility using arch and stochastic volatility models while most of these studies have documented highly significant in sample parameter estimates and pronounced intertemporal volatility persistence traditional ex post forecast evaluation criteria suggest that the models provide seemingly poor volatility forecasts contrary to this contention we show that volatility models produce strikingly accurate interdaily forecasts for the latent volatility factor that would be of interest in most financial applications new methods for improved ex post interdaily volatility measurements based on high frequency intradaily data are also discussed

jumps cojumps and macro announcements we use recently proposed tests to extract jumps and cojumps from three types of assets stock index futures bond futures and exchange rates we then characterize the dynamics of these discontinuities and informally relate them to us macroeconomic releases before using limited dependent variable models to formally model how news surprises explain co jumps nonfarm payroll and federal funds target announcements are the most important news across asset classes trade balance shocks are important for foreign exchange jumps we relate the size frequency and timing of jumps across asset classes to the likely sources of shocks and the relation of asset prices to fundamentals in the respective classes

time consistency and bureaucratic budget competition high employment protection in the public sector results in strategic over employment if government divisions compete for budgets in a dynamic setting bureaucrats who are interested in maximising their divisions output employ excess labour since this induces the sponsor to provide complementary inputs in the future restrictions on hiring decisions in the public sector can be regarded as provisions to reduce strategic hiring we also provide evidence from a survey of decision makers in a public sector bureaucracy with very high employment protection the results confirm that decision makers are aware of the strategic effects of their hiring decisions on budget allocation 2008 the author s journal compilation royal economic society 2008

animal spirits in the foreign exchange market it is traditionally assumed in finance models that the fundamental value of an asset is known with certainty in this paper we depart from that assumption we propose a simple model of the exchange rate in which agents have biased and unbiased beliefs about the fundamental rate we show that such a model produces waves of optimism and pessimism unrelated to the underlying fundamental value in addition the model shows that in a world characterized by the existence of heterogeneous beliefs about the fundamental exchange rate movements can be remarkably complex even if only fundamentalist traders operate in the market

outliers and garch models in financial data abstract we propose to extend the additive outlier ao identification procedure developed by franses and ghijsels franses p h ghijsels h 1999 additive outliers garch and forecasting volatility international journal of forecasting 15 1 9 to take into account the innovative outliers ios in a garch model we apply it to three daily stock market indexes and examine the effects of outliers on the diagnostics of normality

should central bankers talk to the foreign exchange markets in this paper we study the role of official statements and speeches given by central bank authorities in charge of foreign exchange policy we investigate the impact of statements that comment on and confirm such interventions on the day of the intervention on the two major foreign exchange markets over an extended period 1989 2003 we also study the impact in terms of policy effectiveness of central bank communication before the actual operations our results suggest that appropriate speeches clarifying the current intervention policy can have marginally virtuous effects both in terms of exchange rate level and exchange rate volatility this leads us to conclude that in general actual interventions on the market should still be employed provided that official statements are used to clarify the nature and purpose of these interventions c 2008 elsevier ltd all rights reserved

european electricity market integration with mixed market designs part i formulation the integration of the day ahead electricity markets in europe shall lead to one multi area market that will substitute the local national ones in view of the target model that will be enforced in all european markets in conjunction with their forthcoming coupling integration a centralized market splitting algorithm is implemented in this paper respecting the standard market regulatory framework of power exchanges pxs and power pools including 1 block offers bids linked block offers bids flexible hourly offers bids and convertible block offers in power exchanges and 2 unit technical commitment constraints and system operating constraints in power pools the problem is formulated as a mixed integer linear programming milp model which can be solved using commercial milp solvers the performance and computational requirements of an implementation in pan european level is presented in the companion paper the model is tested in terms of problem solvability to its limits considering a day ahead market clearing time threshold equal to one hour

the intra day impact of communication on euro dollar volatility and jumps abstract in this paper we examine the intra day effects of verbal statements and comments on the fx market uncertainty using two measures continuous volatility and discontinuous jumps focusing on the euro dollar exchange rate we provide empirical evidence of how these two sources of uncertainty matter in measuring the short term reaction of exchange rates to communication events talks significantly trigger large jumps or extreme events for approximately an hour after the news release continuous volatility starts reacting prior to the news intensifies around the release time and stays at high levels for several hours our results suggest that monetary authorities generally tend to communicate with markets on days when uncertainty is relatively severe and higher than normal disentangling the us and euro area statements we also find that abnormal levels of volatility are mostly driven by the communication of the euro area officials rather than us authorities

the impact of european central bank governing council announcements on the foreign exchange market a microstructural analysis abstract we examine the evidence regarding systematic patterns in the euro dollar foreign exchange market on days when the governing council gc of the european central bank announces its interest rate decisions versus other days we examine 5 minute data in a non linear framework allowing for switching between a high volatility informed trading state and a low volatility liquidity trading state we find strong evidence that the gc policy announcements contain significant news content although there is some evidence of positioning in the hour prior to the announcement this probably reflects dealers minimizing their exposure rather than evidence of information leakage

the temporal pattern of trading rule returns and exchange rate intervention intervention does not generate technical trading profits abstract this paper characterizes the temporal pattern of trading rule returns and official intervention for australian german swiss and u s data to investigate whether intervention generates technical trading rule profits the data reject the hypothesis that intervention generates inefficiencies from which technical rules profit in particular high frequency data show that abnormally high trading rule returns precede german swiss and u s intervention australian intervention precedes high trading rule returns but trading intervention patterns make it implausible that intervention actually generates those returns rather intervention responds to exchange rate trends from which trading rules have recently profited

the average shadow price for milps with integral resource availability and its relationship to the marginal unit shadow price abstract the economic significance of the average shadow price for integer and mixed integer linear programming milp problems has been established by researchers kim and cho eur j operat res 37 1988 328 crema eur j operat res 85 1995 625 in this paper we introduce a valid shadow price aspira for integer programs where the right hand side resource availability can only be varied in discrete steps we also introduce the concept of marginal unit shadow price musp we show that for integer programs a sufficient condition for the marginal unit shadow price to equal the average shadow price is that the law of diminishing returns should hold the polyhedral structures that will guarantee this equivalence have been explored identification of the problem classes for which the equivalence holds complements the existing procedure for determining shadow price for such integer programs the concepts of aspira and musp introduced in this paper can play a vital role in resource acquisition plans and in defining efficient market clearing prices in the presence of indivisibilities

the short run dynamics of the price adjustment to new information we examine how prices in interest rate and foreign exchange futures markets adjust to the new information contained in scheduled macroeconomic news releases in the very short run using 10 second returns and tick by tick data we find that prices adjust in a series of numerous small but rapid price changes that begin within 10 seconds of the news release and are basically completed within 40 seconds of the release there is some evidence that prices overreact in the first 40 seconds but that this is corrected in the second or third minute after the release while volatility tends to be higher than normal just before the news release there is no evidence of information leakage in our analysis we correct for the biases created by bid ask spreads and tick by tick data

safe havens in the face of presidential election uncertainty a comparison between bitcoin oil and precious metals even though the empirical literature on safe haven properties of different assets with respect to financial risks is increasing their abilities to safeguard against political risks has not been th

on the long term effectiveness of exchange rate communication and interventions abstract exchange rate communication has come to play an increasingly important role as a policy tool for monetary authorities over the past decade the paper assesses the strategies and the long term effectiveness of communication as well as actual interventions the empirical results for the g3 economies indicate that communication has not only exhibited a significant contemporaneous effect on exchange rates but also has moved forward exchange rates up to a horizon of 6 months in the desired direction moreover communication is found to reduce exchange rate volatility and uncertainty whereas actual interventions tend to raise it overall this underlines a key difference between these two policy tools and suggests that communication tends to be a fairly effective policy tool over the medium term

how markets process information news releases and volatility we examine the impact of scheduled macroeconomic news announcements on interest rate and foreign exchange futures markets we find these announcements are responsible for most of the observed time of day and day of the week volatility patterns in these markets while the bulk of the price adjustment to a major announcement occurs within the first minute volatility remains substantially higher than normal for roughly fifteen minutes and slightly elevated for several hours nonetheless these subsequent price adjustments are basically independent of the first minute s return we identify those announcements with the greatest impact on these markets we examine the impact on interest rate and foreign exchange markets of scheduled macroeconomic news releases such as the employment report the consumer price index cpi and the producer price index ppi many market participants believe that such announcements have a major impact on financial markets indeed a small industry devoted to predicting the figures to be released in upcoming releases has evolved in recent years with the exception of the weekly money supply figures however the impact of such announcements on financial markets has received scant attention 1 this is doubly surprising given the considerable research interest in market volatility since these news releases are a potential source of much of this volatility consider for instance figure 1 as shown there prices in interest rate and foreign exchange futures markets are much more volatile between 8 30 and 8 35 a m eastern time et than during any other five minute trading period including

central bank communication and monetary policy a survey of theory and evidence over the last two decades communication has become an increasingly important aspect of monetary policy these real world developments have spawned a huge new scholarly literature on central bank communication mostly empirical and almost all of it written in this decade we survey this ever growing literature the evidence suggests that communication can be an important and powerful part of the central bank s toolkit since it has the ability to move financial markets to enhance the predictability of monetary policy decisions and potentially to help achieve central banks macroeconomic objectives however the large variation in communication strategies across central banks suggests that a consensus has yet to emerge on what constitutes an optimal communication strategy

talking heads the effects of ecb statements on the euro dollar exchange rate abstract this paper studies the reaction of the conditional mean and volatility of the euro dollar exchange rate to statements by european central bank and national central bank officials we focus on comments on monetary policy and the external value of the euro we find that the bundesbank has dominated the news coverage we conclude that ecb statements have mainly influenced conditional volatility in some cases there are effects of statements on the conditional mean of the euro dollar exchange rate efforts to talk up the euro have generally not been successful there is also evidence of asymmetric reactions to news

how does economic policy uncertainty drive gold stock correlations evidence from the uk abstractin this article we investigate the effects of economic policy uncertainty epu on correlations between the uk stock market and gold market we find that less certain economic policies result in lower correlations while more certain economic policies result in higher correlations the correlations are symmetric and show no structural breaks caused by the recent financial crisis the recent financial crisis has not changed epu effects on the correlations the effects of one positive one standard deviation shock of the logarithmic change rate of the epu on the correlations last approximately 19 months

us presidential elections and implied volatility the role of political uncertainty abstract this paper focuses on the effects of political uncertainty and the political process on implied stock market volatility during us presidential election cycles using monthly iowa electronic markets data over five elections we document that stock market uncertainty as measured by the vix volatility index increases along with positive changes in the probability of success of the eventual winner the association between implied volatility and the election probability of the eventual winner is positive even after controlling for changes in overall election uncertainty these findings indicate that the presidential election process engenders market anxiety as investors form and revise their expectations regarding future macroeconomic policy

why do central banks intervene abstract intervention by central banks in terms of buying and selling foreign currency has been a major activity in recent years this paper investigates the motivations for such policy and the evidence for its effectiveness we use high quality daily data on the dollar amounts of intervention by the central banks of the us and germany we also use information on agreed g7 target levels for the dm and yen nominal exchange rates daily nominal dollar exchange rate returns are well described as a martingale garch process and we find little evidence that the different types of intervention have had much effect on the conditional mean of exchange rate returns there is some evidence that intervention is associated with slight increases in the volatility of exchange rate returns while little evidence is found for the effectiveness of intervention the motivations are more clear in particular from the application of probit analysis we find that the probability of intervention is determined by the magnitude of the deviation of the nominal exchange rate from the agreed target level and to a lesser extent by the current volatility of exchange rates

dynamic spillovers of oil price shocks and economic policy uncertainty this study examines the dynamic relationship between changes in oil prices and the economic policy uncertainty index for a sample of both net oil exporting and net oil importing countries over the period 1997 01 2013 06 to achieve that an extension of the diebold and yilmaz 2009 2012 dynamic spillover index based on structural decomposition is employed the results reveal that economic policy uncertainty oil price shocks responds negatively to aggregate demand oil price shocks economic policy uncertainty shocks furthermore during the great recession of 2007 2009 total spillovers increase considerably reaching unprecedented heights moreover in net terms economic policy uncertainty becomes the dominant transmitter of shocks between 1997 and 2009 while in the post 2009 period there is a significant role for supply side and oil specific demand shocks as net transmitters of spillover effects these results are important for policy makers as well as investors interested in the oil market

the economics of bitcoin price formation abstractthis is the first article that studies bitcoin price formation by considering both the traditional determinants of currency price e g market forces of supply and demand and digital currencies specific factors e g bitcoin attractiveness for investors and users the conceptual framework is based on the barro 1979 model from which we derive testable hypotheses using daily data for five years 2009 2015 and applying time series analytical mechanisms we find that market forces and bitcoin attractiveness for investors and users have a significant impact on bitcoin price but with variation over time our estimates do not support previous findings that macro financial developments are driving bitcoin price in the long run

central bank intervention and foreign exchange rates new evidence from figarch estimations abstract in this paper we investigate the effects of official interventions on the short run evolution and volatility of exchange rates to this aim we rely on a new measure of volatility implied by the figarch model that outperforms the traditionally used garch one it is found that central bank interventions exert an incorrectly signed effect on the levels of exchange rates and tend to increase their volatility in the short run in general our results also show that the traditional garch estimations tend to underestimate the effects in terms of volatility

oral interventions versus actual interventions in fx markets an event study approach the article assesses whether exchange rate communication or oral intervention has been an effective policy tool for monetary authorities to influence exchange rates it employs an event study methodology that identifies intervention clusters or events for the euro dollar and the dollar yen exchange rates the article finds that both oral intervention events and actual intervention events have been highly successful over the short to medium run the article shows that the success of intervention events is related to market conditions and to the coordination among policy makers it also finds that the success of communication and actual interventions is largely unrelated to monetary policy thus suggesting that interventions primarily function through a coordination channel

competitive equilibrium in an exchange economy with indivisibilities abstract we analyze an exchange economy in which i all commodities except money are indivisible ii agents preferences can be described by a reservation value for each bundle of indivisible objects and iii all agents are price takers we obtain a necessary and sufficient condition under which market clearing prices exist implications for market mechanisms are discussed journal of economic literatureclassification numbers d51 c78

average shadow price and equilibrium price a case study of tradable pollution permit markets abstract shadow prices indicate implicit values of limited resources at the margin and provide important information in decision making for resource management in continuous economic models shadow prices associated with demand supply balance constraints represent consumers willingness to pay and producers marginal cost hence they correspond to market equilibrium prices as well known however marginal analysis fails in the case of discrete optimization such as mixed integer programming an alternative concept has been introduced in the literature to measure the value of an extra unit of a limited resource in such cases this concept is based on average rather than marginal values thus called the average shadow price and interpreted in the same way as conventional shadow prices whether average shadow prices in a discrete economic model can serve as market equilibrium prices has not been addressed in the related literature the present paper addresses this issue in an empirical setting using a tradable pollution permit market as an example where firms yes no type technology adoption decisions are represented by binary variables we show that the average shadow price of tradable permits can be interpreted as the equilibrium price only when certain conditions related to the cost structure and emission levels hold on the other hand we show that an iterative procedure based on individual firms cost minimizing behavior presents a better approach for finding a price that can eliminate or reduce the gap between demand and supply of permits in the market

jumps in financial markets a new nonparametric test and jump dynamics this paper introduces a new nonparametric test to detect jump arrival times and realized jump sizes in asset prices up to the intra day level we demonstrate that the likelihood of misclassiflcation of jumps becomes negligible when we use high frequency returns using our test we examine jump dynamics and their distributions in the u s equity markets the results show that individual stock jumps are associated with prescheduled earnings announcements and other company speciflc news events additionally s p 500 index jumps are associated with general market news announcements this suggests difierent pricing models for individual equity options versus index op

event studies in economics and finance the event study is an important research tool in economics and finance the goal of an event study is to measure the effects of an economic event on the value of firms event study methods exploit the fact that given rationality in the marketplace the effects of an event will be reflected immediately in security prices thus the impact can be measured by examining security prices surrounding the event in this paper event study methods are described including some of the potential complications an example is included to illustrate the approach

is bitcoin a hedge a safe haven or a diversifier for oil price movements a comparison with gold abstract this study assesses the roles of bitcoin as a hedge a safe haven and or a diversifier against extreme oil price movements in comparison to the corresponding roles of gold we use a quantile on quantile regression approach to capture the dependence structure between the considered market returns under different bitcoin market conditions while considering nuances of oil price movements compared to gold our findings show that both bitcoin and gold would serve the roles of a hedge a safe haven and a diversifier for oil price movements however this property seems to be sensitive to the bitcoin s and gold s different bear normal or bull market conditions and to whether the oil price is in a downside normal or upside regime by controlling for new and relevant u s and global uncertainty indicators we confirm that both bitcoin and gold but not oil are assets where investors may park their cash during times of political and economic turmoil the conditional value at risk covar approach to risk management is then conducted providing robust evidence of the usefulness of each of the bitcoin and gold in expanded oil portfolios in terms of diversification opportunities and downside risk reductions