Does the Introduction of Futures on Emerging Market Currencies Destabilize the Underlying Currencies?
February 1, 1998
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Summary
Recent interest in futures contracts on emerging market currencies has raised concerns among some central bank authorities about their ability to maintain stable currencies. This paper presents empirical results examining the influence of the Mexican peso, the Brazilian real, and the Hungarian forint futures contracts on the respective spot markets. While measures of linear dependence and feedback indicate strong connections between the respective markets, futures volatility does not significantly explain spot market volatility, nor does it increase after futures introductions. To account for the characteristics of the spot and futures returns a SWARCH model has been employed to estimate volatility.
Subject: Currencies, Currency markets, Emerging and frontier financial markets, Financial institutions, Financial markets, Futures, Futures markets, Money
Keywords: Currencies, currency futures futures contract, Currency markets, Emerging and frontier financial markets, emerging market, emerging markets, exchange rate, Futures, futures FX, Futures markets, futures volatility, Global, Mexican peso, spot market volatility, SWARCH, volatility spillover, WP
Pages:
39
Volume:
1998
DOI:
---
Issue:
013
Series:
Working Paper No. 1998/013
Stock No:
WPIEA0131998
ISBN:
9781451842975
ISSN:
1018-5941
Notes
Also published in Staff Papers, Vol. 45, No. 3, September 1998.
