a comparison of alternative covariance matrices for models with over lapping observations abstract this paper investigates the relative performance of alternative covariance matrices for models with over lapping observations commonly used in the finance literature the alternative covariance matrices used are those of hansen 1982 newey and west 1987 bartlett and quadratic spectral qs weights and andrews and monahan 1992 qs weights all matrices produce standard errors which are too small yielding empirical size probabilities above their corresponding theoretical values even in large samples empirical examples such as testing efficiency in the foreign exchange market and mean reversion in stock prices show that the choice of covariance matrix can affect the outcome of a hypothesis test

forecasting the exchange rate a monetary or random walk phenomenon abstract this paper evaluates the forecasting accuracy of monetary and random walk models of the exchange rate instrumental variable estimates of the simple monetary model are not supported by the data while the full information maximum liklihood estimates of its rational expectations counterpart are the rational expectations monetary model is operationalized using the results of hansen and sargent 1980 and flavin 1981 and box jenkins time series techniques monthly data on the us and uk economics over the recent flexible exchange rate period serve as the case study

short run forecasting of the euro dollar exchange rate with economic fundamentals abstract we propose a fundamentals based econometric model for the weekly changes in the euro dollar rate with the distinctive feature of mixing economic variables quoted at different frequencies the model obtains good in sample fit and more importantly encouraging out of sample forecasting results at horizons ranging from one week to one month specifically we obtain statistically significant improvements upon the hard to beat random walk model using traditional statistical measures of forecasting error at all horizons moreover our model obtains a great improvement when we use the direction of change metric which has more economic relevance than other loss measures with this measure our model performs much better at all forecasting horizons than a naive model that predicts the exchange rate as an equal chance to go up or down with statistically significant improvements

trader see trader do how do small fx traders react to large counterparties trades abstract we show that information about the counterparty of a trade affects the future trading decisions of individual traders the effect is such that traders tend to reverse their order flow in line with the better informed counterparties informed traders primarily incorporate their own private as well as publicly available information into prices whereas uninformed traders mainly magnify the effect of the informed this pattern of interaction among traders extends to different order types traders treat their own and others market orders as more informative than limit orders

the pricing of options on assets with stochastic volatilities one option pricing problem that has hitherto been unsolved is the pricing of a european call on an asset that has a stochastic volatility this paper examines this problem the option price is determined in series form for the case in which the stochastic volatility is independent of the stock price numerical solutions are also produced for the case in which the volatility is correlated with the stock price it is found that the black scholes price frequently overprices options and that the degree of overpricing increases with the time to maturity one option pricing problem that has hitherto remained unsolved is the pricing of a european call on a stock that has a stochastic volatility from the work of merton 12 garman 6 and cox ingersoll and ross 3 the differential equation that the option must satisfy is known the solution of this differential equation is independent of risk preferences if a the volatility is a traded asset or b the volatility is uncorrelated with aggregate consumption if either of these conditions holds the risk neutral valuation arguments of cox and ross 4 can be used in a straightfoward way this paper produces a solution in series form for the situation in which the stock price is instantaneously uncorrelated with the volatility we do not assume that the volatility is a traded asset also a constant correlation between the instantaneous rate of change of the volatility and the rate of change of aggregate consumption can be accommodated the option price is lower than the blackscholes b s 1 price when the option is close to being at the money and higher when it is deep in or deep out of the money the exercise prices for which overpricing by b s takes place are within about ten percent of the security price this is the range of exercise prices over which most option trading takes place so we may in general expect the b s price to overprice options this effect is exaggerated as the time to maturity increases one of the most surprising implications of this is that if the b s equation is used to determine the implied volatility of a near the money option the longer the time to maturity the lower the implied volatility numerical solutions for the case in which the volatility is correlated with the stock price are also examined the stochastic volatility problem has been examined by merton 13 geske 7 johnson 10 johnson and shanno 11 eisenberg 5 wiggins 16 and

global microstructures the virtual societies of financial markets using participant observation data interviews and trading transcripts drawn from interbank currency trading in global investment banks this article examines regular patterns of integration that characterize the global social system embedded in economic transactions to interpret these patterns which are global in scope but microsocial in character this article uses the term global microstructures features of the interaction order loosely defined have become constitutive of and implanted in processes that have global breadth this study draws on schutz in the development of the concept of temporal coordination as the basis for the level of intersubjectivity discerned in global markets this article contributes to economic sociology through the analysis of cambist i e trading markets which are distinguished from producer markets and by positing a form of market coordination that supplements relational or network forms of coordination

the emergence of iran in the world car industry an estimation of its export potential in the past 10 years iran has been emerging as a major car producer in the world however due to delays in economic reforms iranian car exports have not increased as much as production this paper presents a first estimation of the iranian export potential in the car industry based on new theoretical developments of the gravity equation an empirical bilateral trade model is proposed it includes sectoral variables car production import tariffs as well as other original variables such as expectations and hysteresis we then develop a dataset which includes the 40 major car exporting countries in the world 34 importing countries a 10 year time period as well as four car production groups the model is then estimated by using alternative panel data estimators such as those of hausman and taylor and dynamic estimators as well as transformed variables estimators export potential is finally calculated from the residuals of the model results show that iranian current car exports are about 100 times less than their fitted values this indicates that there is a significant export potential for iran especially toward india china russia as well as smaller neighbours turkey pakistan central asian countries as a result iran could become the major auto supplier in the middle east however this requires the completion and success of ongoing economic reforms

scale economies and the volume of trade in this paper we split the number of actual years of schooling into five components effective years repeated years skipped years inefficient routing years and dropout years estimation of earnings equations using these explanatory variables produces some interesting empirical and theoretical results the main empirical finding is that the concepts of actual and effective years of schooling that are usually used in the estimation of earnings equations are statistically inferior to our classification both concepts pro

order of entry as a moderator of the effect of the marketing mix on market share order of entry has been demonstrated to have a significant effect on market share a number of explanations for this effect have been suggested in the marketing and strategy literatures to date the market share advantage gained by pioneers has typically been treated as a main effect an automatic regularity treating order of entry as a main effect implies that there is no penalty on the effectiveness of a brand s marketing instruments for late entry and that a late entrant can compensate for being late by dedicating sufficient marketing resources to their product in this study we investigate the influence of order of entry into a market on the effectiveness of a firm s marketing mix decisions by asking the question can followers compensate for not being first by their marketing mix decisions also even if they can compensate for being late does this effort become increasingly more difficult with later entry that is are there asymmetries in the effectiveness of a brand s marketing mix variables that relate to its order of entry into the market or as has been typically assumed to date is order of entry strictly a main effect an asymmetry exists for example if the market response to advertising is different for the first entrant versus the second or third entrant an asymmetry also exists if the effects of say a price change by the first entrant on the second entrant are different than the effects on the third entrant we develop a market share attraction model where the parameters vary as a function of order of entry our main contribution is in modeling the sources of order of entry advantage as asymmetries in the effectiveness of a brand s marketing instruments hence distinct from previous research we explain why there are inherent order of entry effects this paper is potentially of interest to researchers developing market share models and studying the effectiveness of marketing mix variables the substantive implication of our results concern directly academics interested in marketing strategy as well as the practicing marketing strategists we model asymmetries in the market response of early entrants versus late entrants using data from two durables and three nondurables categories with one exception all data sets are established from the inception of the category and hence do not suffer from the possible bias of excluding pioneers who have failed results show that asymmetries in the effectiveness of a brand s marketing mix variables are an essential source of order of entry effects we find that the main effects of order of entry are minimal order of entry effects do not necessarily lead to lower shares but overcoming these effects is not without substantial cost to the late entrant our results support previous research that has demonstrated advantages to early entry in addition we provide guidelines for how late entrants should compete later entry tends to reduce a competitor s price sensitivity suggesting that they not instigate in a price war with earlier entrants in order to gain share order of entry tends to decrease response to quality and to promotion to achieve the same impact on market share later entrants need a bigger change in quality and need to spend more on promotion our data did not support an asymmetric effect on advertising

the use of flow analysis in foreign exchange exploratory evidence abstract this paper provides questionnaire evidence on the role of flow analysis for professional traders and fund managers this evidence suggests that besides fundamental information and technical analysis the analysis of flows provides an independent third type of information for professionals the view that flows can be used to learn about fundamentals is not consistent with the data instead evidence indicates that flows more likely provide insight into semi fundamental private information

the influence of fundamentals on exchange rates findings from analyses of news effects as we survey the literature of macroeconomic news in the foreign exchange market we can by now look back on nearly 30 years of research the first studies which analysed news effects on exchange rates were established in the early 1990s see for example dornbusch almost at the same time meese and rogoff published their influential paper revealing the forecasting inferiority in exchange rates of structural models against the random walk this finding has shocked the pillars of exchange rate economics and thus cast general suspicion on research focusing on fundamentals in this field the eventual rising popularity of event studies can partly be attributed to the re establishment of the raison d etre of exchange rate economics this work focuses on systematically surveying this literature with particular respect to its primary goal i e shedding light on the analytical value of fundamental research thus its major findings are first fundamental news does matter whereas non fundamental news matters to a lesser degree second news influences exchange rates via two separated channels i e incorporating common information into prices directly or indirectly based upon order flow third with a few exceptions the impact of fundamental news on exchange rates is fairly stable over time

an econometric view on the estimation of gravity models and the calculation of trade potentials this paper presents an ar 1 model in the spirit of hausman and taylor zero differences between actual and in sample predicted trade flows large systematic differences between observed and in sample predicted trade flows only indicate model misspecification and econometric problems out of sample predictions make sense if countries of interest are in an early stage of the transformation process the gravity model remains an interesting tool for the calculation of counterfactuals e g the impact of catching up in gdp per capita in the ceec or of the reduction of trade costs via infrastructure investments or tariffs on bilateral trade etc for this line of research the difference between short term and long term influences could provide interesting insights

towards a new trade policy between the usa and middle east countries estimating trade resistance and export potential at the time of the conclusion of free trade areas ftas between the usa and middle east and north african mena countries there is a lack of literature concerning the measurement of the current us export position with regards to these countries and the us export potential in this area from recent developments of gravity models this paper derives an estimable equation which includes various trade resistance variables notably border effects multilateral resistance as well as specific bilateral effects the model is tested in order to scrutinise the impact of these variables on us exports to mena countries as well as the us export potential in this area to that end a selection of panel data specifications is proposed mainly hausman and taylor models as well as arellano and bond dynamic models results unambiguously indicate that as compared to the other oecd countries the usa suffers from a substantial trade integration deficit with mena countries this is reflected by the strongly negative values of the us mena bilateral fixed effects as well as the high bilateral border effects in addition the estimated actual potential us export ratio to these countries is only 0 76 therefore implementing an fta between the usa and mena countries may allow the former to progressively improve its export position in this area this would also help mena countries diversify their supplying sources

persistent trade effects of large exchange rate shocks this paper presents a theoretical basis for the argument that large exchange rate shocks such as the 1980s dollar cycle may have persistent effects on trade flows and the equilibrium exchange rate itself we begin with a partial equilibrium model in which large exchange rate fluctuations lead to entry or exit decisions that are not reversed when the currency returns to its previous level then we develop a simple model of the feedback from hysteresis in trade to the exchange rate itself here we see that a large capital inflow which leads to an initial appreciation can result in a persistent reduction in the exchange rate consistent with trade balance

real exchange rates and macroeconomics a selective survey the paper discusses real exchange rate issues of industrial and of developing countries for real exchange rates among the key industrial countries we ask what is the best conceptual framework to shed light on this question we look at alternative theoretical approaches and at empirical evidence on the relation among interest rates expectations and depreciation the discussion of developing countries real exchange rates focuses on the link between real exchange rates real wages and the profitability of capital the model highlights the discrepancy between the mobility of capital including in the long run physical capital and

alternative hypotheses and the volume of trade the gravity equation and the extent of specialization we examine why the gravity equation works and the implications for its use first we demonstrate that the gravity equation as a statistical relationship can be generated from a model with incomplete specialization and trade costs second we analyse the predominance of zero bilateral trade values as a puzzle broadly inconsistent with the complete specialization models typically used to derive the gravity equation but consistent with the alternative hypothesis of incomplete specialization third we demonstrate that the explanation for why the gravity equation works has considerable relevance for how the gravity equation is interpreted and used and how we view bilateral trade diverses hypotheses et le volume du commerce l equation de gravite et le degre de specialisation les auteurs examinent comment fonctionne l equation de gravite et les implications de son usage on propose trois contributions d abord on montre que l equation de gravite en tant que relation statistique et non pas en tant que prediction specifique de commerce bilateral peut etre produite a partir d un modele avec specialisation incomplete et couts de transaction ensuite on analyse la predominance de valeurs zero dans les commerces bilateraux en tant qu enigme generalement incompatible avec les modeles de specialisation complete utilises habituellement pour deriver l equation de gravite mais compatible avec l hypothese de rechange de specialisation incomplete enfin on montre que les raisons pour lesquelles l equation de gravite fonctionne ont un impact sur la facon de l interpreter et de l utiliser et sur notre facon de concevoir le commerce bilateral

the foreign exchange market a random walk with a dragging anchor this paper explores some anomalies in the foreign exchange market it is hard to find evidence of either short term overshooting or of longer term reversion to an equilibrium the forward exchange rate contains virtually no information on future spot rates discussions with practitioners indicate that longer term speculation based on fundamentals is strictly limited and survey data and other evidence suggest that expectations and speculation are based on a variety of models the interplay between speculation based on fundamentals and on a random walk or chartist approach influences the outcome this endorses the prior model of j a frankel and k a froot copyright 1988 by the london school of economics and political science

using survey data to test standard propositions regarding exchange rate expectations survey data provide a measure of exchange rate expectations superior to the forward rate in that no risk premium interferes we estimate extrapolative adaptive and regressive models of expectations static or random walk expectations and bandwagon expectations are rejected current appreciation generates the expectation of future depreciation because variables other than the contemporaneous spot rate receive weight in comparing expectations to the process governing the spot rate we find statistically significant bias no variable is as ubiquitous in international financial theory and yet as elusive empirically as investors expectations regarding exchange rates in the past expectations have been modeled in an ad hoc way often by using the forward exchange rate there is however a serious problem with using the forward discount as the measure of the expected change in the exchange rate in that the two may not be equal the gap that may separate the forward discount and expected depreciation is generally interpreted as a risk premium most of the large empirical literature testing the unbiasedness of the forward exchange rate for example has found it necessary either arbitrarily to assume away the existence of the risk premium if the aim

currency fluctuations in the post bretton woods era the international monetary landscape that has emerged since the felling of bretton woods is characterized by a hybrid exchange rate system that lies somewhere between the textbook polar cases of a gold standard and a pure float this system has relatively flexible exchange rates between major countries active central bank intervention in the market for the major currencies and predominantly fixed exchange rates relative to the dollar or to some basket of currencies for less developed countries and newly industrializing nations the majority of research on currency markets since the early 1970s has focused on the characteristics of flexible exchange rates under this hybrid regime my thesis is that this research has been unsuccessful the proportion of monthly or quarterly exchange rate changes that current models can explain is essentially zero even after the fact forecasts that use actual values instead of forecasted values of the explanatory variables cannot explain major currency movements over the post bretton woods era this result is quite surprising since exchange rate changes would be entirely unpredictable only in very special cases of the theoretical models discussed as the discussion below will argue it is not a general implication of market efficiency that exchange rates follow a random walk process 1

public information arrival we develop a measure of public information flow to financial markets and use it to document the patterns of information arrival with an emphasis on the intraday flows the measure is the number of news releases by reuter s news service per unit of time we find that public information arrival is nonconstant displaying seasonalities and distinct intraday patterns next we relate our measure of public information to aggregate measures of intraday market activity our results suggest a positive moderate relationship between public information and trading volume but an insignificant relationship with price volatility

the directional volatility connectedness between crude oil and equity markets new evidence from implied volatility indexes in this paper we use a set of newly introduced implied volatility indexes to investigate the directional connectedness between oil and equities in eleven major stock exchanges around the globe from 2008 to 2015 the inference on the oil equity implied volatility relationships depends on diebold and yilmaz 2012 2014 2015 who proposed a set of directional measures that enable the dynamic and directional characterization of the relationships among financial variables we find uniform results across the sample countries indicating that the connectedness between oil and equity is established by the bi directional information spillovers between the two markets however we find that the bulk of association is largely dominated by the transmissions from the oil market to equity markets and not the other way around the pattern of transmissions is varying over the sample period however most of the linkages between oil and equities are established from the mid of 2009 to the mid of 2012 which is a period that witnessed the start of global recovery

modelling s p 100 volatility the information content of stock returns abstract theoretical models that relate volatility to the quantity of information are extended to a multi asset setting and it is deduced that stock returns may or may not have incremental information when modelling index volatility depending on the sources of information that move stock prices the first empirical study that can help resolve this theoretical uncertainty is presented a detailed analysis of the daily volatility of the s p 100 index from 1984 to 1998 shows there is some incremental volatility information in the returns from the 100 shares that define the index this evidence is obtained from arch models that incorporate leverage effects dummy variables for the 1987 crash and aggregate measures of stock return volatility significant differences between estimated volatilities are found for various stock measures and sub periods

does the exchange rate follow a random walk a monte carlo study of four tests for a random walk abstract several authors have urged that real and nominal exchange rates follow a random walk conditions under which the exchange rate follows a random walk are reviewed in this paper many of these do not appear to hold therefore the empirical evidence presents a puzzle some evidence suggets the exchange rate follows a random walk while other evidence suggests the opposite should be true this paper attempts to reconcile the evidence it is argued that the tests for a random walk have low power monte carlo evidence on four tests for a random walk is presented that suppors this claim

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

the information content of implied volatilities and model free volatility expectations evidence from options written on individual stocks abstract we measure the volatility information content of stock options for individual firms using option prices for 149 us firms and the s p 100 index we use arch and regression models to compare volatility forecasts defined by historical stock returns at the money implied volatilities and model free volatility expectations for every firm for 1 day ahead estimation a historical arch model outperforms both of the volatility estimates extracted from option prices for 36 of the firms but the option forecasts are nearly always more informative for those firms that have the more actively traded options when the prediction horizon extends until the expiry date of the options the option forecasts are more informative than the historical volatility for 85 of the firms however at the money implied volatilities generally outperform the model free volatility expectations

sand in the wheels or spanner in the works the tobin tax and global finance this paper presents a radical critique of the tobin tax a tax on currency transactions by undercutting certain assumptions about the size and character of the world s foreign exchange markets which furnish the tax with its basic rationale while it is acknowledged that only a fraction of the massive volumes of fx transactions relate directly to trade in goods and services or to cross border investments it is denied that all the residual transactions are motivated purely by exchange rate considerations speculative or hedging activities rather the argument is that a significant proportion of fx trades have money market characteristics and that these trades together with domestic money market transactions play an important role in the day to day operation of the global financial system this perspective is used to show that the imposition of a tobin tax would cause extensive material damage to the system with consequences that may run counter to the expectations of supporters of the tax

expectations driven distortions in the foreign exchange market this paper explores the phenomenon of lasting deviations of the exchange rate from its fundamental value in the foreign exchange market motivated by empirical observations a chartists fundamentalists model is developed in which boundedly rational agents repeatedly choose between technical and fundamental trading rules to determine their speculative investment positions crucial for the dynamics is how the traders perceive the fundamental exchange rate this perception process is based on psychological evidence simulations give rise to bubbles but simultaneously display quite realistic exchange rate dynamics unit roots in the exchange rates fat tails for returns and volatility clustering

risk aversion foreign exchange speculation and gambler s ruin the apparent persistence of unexploited opportunities for expected profits in foreign exchange markets suggests highly risk averse market participants financial institutions put tight limits on the foreign exchange positions they may have at risk at any time despite beliefs that the odds are favourable that the positions will be profitable this safety first practice is consistent with keeping the probability of ruin low enough to be of no practical concern the setting of a very low probability of ruin for prudential reasons provides a rationale for traders behaving as if they have a degree of risk aversion that might otherwise seem implausibly high

domestic monetary transfers and the inland bill of exchange markets in spain 1775 1885 abstract this article studies the monetary transfers system that was created by the short term inland bill of exchange markets for decades this system was the most practical way of channeling the growing volume of transfers which were taking place as a consequence of the growth of the spanish economy this analysis argues that between 1775 and 1885 the markets involved in this activity became progressively more efficient due largely to the multilateralization of the payment system this situation lasted longer in spain than in the rest of europe since spanish banking was initially slower to develop using univariate and multivariate garch models it was possible to conclude that the inland bill of exchange markets constituted an essential monetary instrument and one that faithfully reflects the integration of monetary markets in spain

learning to forecast the exchange rate two competing approaches this paper compares two competing approaches to model foreign exchange market participants behavior statistical learning and fitness learning these learning mechanisms are applied to a set of predictors chartist and fundamentalist rules we examine which of the learning approaches is best in terms of replicating the exchange rate dynamics within the framework of a standard asset pricing model we find that both learning methods reveal the fundamental value of the exchange rate in the equilibrium but only fitness learning creates the disconnection phenomenon and only statistical learning replicates volatility clustering none of the mechanisms is able to produce a unit root process but both of them generate non normally distributed returns

the use of technical analysis in the foreign exchange market abstract technica or chartist analysis of financial markets involves providing forecasts or trading advice on the basis of largely visual inspection of past prices without regard to any underlying economic or fundamental analysis this paper reports the results of a questionnaire survey conducted on behalf of the bank of england among chief foreign exchange dealers based in london in november 1988 amongst other findings it is revealed that at least 90 per cent of respondents place some weight on this form of non fundamental analysis when forming views at one or more time horizons there is also a skew towards reliance on technical as opposed to fundamentalist analysis at shorter horizons which becomes steadily reversed as the length of horizon considered is increased a very high proportion of chief dealers view technical and fundamental analysis as complementary forms of analysis and a substantial proportion suggest that technical advice may be self fulfilling jel f31

explaining the volume of north south trade much of the recent literature on scale economies has been motivated by the large volume of trade among the industrialized countries relative to north south trade this paper presents theoretical and empirical analyses of two alternative hypotheses one based on differences in north versus south gnp and one based on higher protection levels in the south counter factual experiments using a numerical general equilibrium model support the hypotheses that north south trade is relatively small because the south is poor and highly protected copyright 1990 by royal economic society

modeling and predicting the cboe market volatility index abstract this paper performs a thorough statistical examination of the time series properties of the daily market volatility index vix from the chicago board options exchange cboe the motivation lies not only on the widespread consensus that the vix is a barometer of the overall market sentiment as to what concerns investors risk appetite but also on the fact that there are many trading strategies that rely on the vix index for hedging and speculative purposes preliminary analysis suggests that the vix index displays long range dependence this is well in line with the strong empirical evidence in the literature supporting long memory in both options implied and realized variances we thus resort to both parametric and semiparametric heterogeneous autoregressive har processes for modeling and forecasting purposes our main findings are as follows first we confirm the evidence in the literature that there is a negative relationship between the vix index and the s p 500 index return as well as a positive contemporaneous link with the volume of the s p 500 index second the term spread has a slightly negative long run impact in the vix index when possible multicollinearity and endogeneity are controlled for finally we cannot reject the linearity of the above relationships neither in sample nor out of sample as for the latter we actually show that it is pretty hard to beat the pure har process because of the very persistent nature of the vix index

quantitative easing is not as unconventional as it seems policy interest rates do not have to be short the means by which monetary authorities influence prices and quantities can differ but the obstacles to altering one rather than the other are not insuperable inflation is sluggish and expectations of future interest rates long and short nominal and real are diverse and uncertain these factors determine the limited power that monetary authorities enjoy when they conduct quantitative easing but this policy is not as unconventional as some have claimed and indeed can be viewed as broadly similar to conventional monetary measures the impact of quantitative easing however could be very different depending on the underlying structure of the economy and the fiscal authorities responses finally we note some important caveats that must be borne in mind when trying to evaluate the impact of quantitative easing particularly given the fact that the world s main financial markets are closely linked copyright 2012 oxford university press

the advantage of hiding both hands foreign exchange intervention ambiguity and private information this paper analyzes a dynamic exchange rate policy game in which the central bank has private information about its short term exchange rate target on the one hand and in which the market is faced with a certain degree of ambiguity concerning the actual intervention volume on the other sterilized interventions are shown to derive their effectiveness from the fact that they transmit information about the short term exchange rate target to the market in this respect we provide an explanation for the presumed inconsistency between intervention secrecy and the effectiveness of the signalling channel since our model predicts that interventions will be more effective on average if the central bank retains some degree of ambiguity moreover it is also shown that sterilized interventions will not exert a lasting effect on the exchange rate finally we have also investigated the extent to which some political and economic parameters determine the size of the intervention bias

the price variability volume relationship on speculative markets this paper concerns the relationship between the variability of the daily price change and the daily volume of trading on the speculative markets our work extends the theory of speculative markets in two ways first we derive from economic theory the joint probability distribution of the price change and the trading volume over any interval of time within the trading day and second we determine how this joint distribution changes as more traders enter or exit from the market the model s parameters are estimated by fiml using daily data from the 90 day t bills futures market the results of the estimation can reconcile a conflict between the price variability volume relationship for this market and the relationship obtained by previous investigators for other speculative markets this paper concerns the relationship between the variability of the daily price change and the volume of trading on speculative markets previous empirical studies 2 3 6 12 14 16 of both futures and equity markets always find a positive association between price variability as measured by the squared price change ap2 and the trading volume 2 there are two explanations for the relationship clark s 2 explanation which is secondary to his effort to explain why the probability distribution of the daily price change is leptokurtic emphasizes randomness in the number of within day transactions in clark s model the daily price change is the sum of a random number of within day price changes the variance of the daily price change is thus a random variable with a mean proportional to the mean number of daily transactions clark argues that the trading volume is related positively to the number of within day transactions and so the trading volume is related positively to the variability of the price change the second explanation is due to epps and epps 6 their model examines the mechanics of within day trading the change in the market price on each within day transaction or market clearing is the average of the changes in all of the traders reservation prices epps and epps assume there is a positive relationship between the extent to which traders disagree when they revise their reservation prices and the absolute value of the change in the market price that is an increase in the extent to which traders disagree is associated with a larger absolute price change the price variability volume relationship arises then because the volume of trading is positively related to the extent to which traders disagree when they revise their reservation prices

the road less travelled institutional aspects of data and their influence on empirical estimates with an application to tests of forward rate unbiasedness the difference between data used in empirical studies and that envisioned in the theory can influence empirical estimates sometimes by enough that the direction of future research is altered this paper illustrates how in the context of tests of forward rate unbiasedness a lack of articulation about the mechanics underlying foreign exchange market speculation and about the institutional aspects governing spot and forward rate contracts leads to sampling of the data in a way that is not consistent with the theory the authors find that the sampling problems account for some but not all of the bias in the coefficient on the forward premium copyright 1996 by royal economic society

foreign exchange market efficiency tests implications of recent empirical findings abstract the recent empirical literature on the efficiency of the foreign exchange market has been characterized by strikingly contradictory conclusions drawn from similar empirical evidence these contradictions result because 1 different maintained hypotheses are held and 2 different criteria e g micro versus macroeconomic are used to judge the evidence in this survey we organize the empirical literature under several headings the presence of risk premiums empirical regularities in regression tests profitable trading rules and advanced econometric techniques in integrating this material we consider the implications of the current evidence for investors forecasters policy makers and theorists

order flows news and exchange rate volatility abstract this paper examines the roles of order flow reflecting private information and news reflecting public information in explaining exchange rate volatility analyzing four months of a bank s high frequency dollar euro trading three different kinds of order flow are used in addition to seasonal patterns in explaining volatility we find that only larger sized order flows from financial customers and banks indicating informed trading contribute to explaining volatility whereas flows from commercial customers do not the result is robust when we control for news and other measures of market activity this strengthens the view that exchange rate volatility reflects information processing

empirical evidence on the properties of exchange rate forecasts and the risk premium abstract the purpose in this note is to examine the properties of the risk premium obtained from a new source of market expectations derived from survey data

an empirical examination of long run purchasing power parity using cointegration techniques this paper presents an empirical analysis of long run purchasing power parity ppp for five major exchange rates using recently developed econometric techniques on the cointegration of economic time series our empirical results are extremely unfavourable to the ppp hypothesis as a long run equilibrium condition even with an allowance made for measurement error and or tranportation costs in particular we are unable to reject the hypothesis of non cointegration of the exchange rate and relative prices for any of the countries concerned far from finding a stable long run proportionality between exchange rates and relative prices our results therefore suggest that they tend to drift apart without bound

covered interest parity a high frequency high quality data study profitable deviations from covered interest parity cip represent riskless arbitrage opportunities and so indicate market ineffic iency previous empirical work on cip uses noncontemporaneously sampl ed data and reports mixed results this paper uses high frequency te n minute high quality data gathered personally by the author in th e london foreign exchange market to test the cip condition the resu lts overwhelmingly support the market efficiency hypothesis copyright 1987 by the review of economic studies limited

the term structure of forward exchange premiums and the forecastability of spot exchange rates correcting the errors we develop a framework to extract information regarding subsequent spot rate movements from the term structure of forward exchange premiums while admitting possible deviations from rationality and