Does the Introduction of Futures on Emerging Market Currencies Destabilize the Underlying Currencies?

Author/Editor:

Christian Jochum ; Laura E. Kodres

Publication Date:

February 1, 1998

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

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.

Series:

Working Paper No. 98/13

Notes:

Also published in Staff Papers, Vol. 45, No. 3, September 1998.

English

Publication Date:

February 1, 1998

ISBN/ISSN:

9781451842975/1018-5941

Stock No:

WPIEA0131998

Format:

Paper

Pages:

39

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