This paper proposes a new class of GARCH-jump in mean models to test the presence of time varying risk premia associated with normal and extreme news events. The model allows for a dynamic jump component with autoregressive jump intensity, long-range dependence in volatility dynamics, and...

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...

This study proposes a more robust estimation of the implied volatility in the FX market, offers a possible explanation to the observed quot;smilequot; in implied volatilities based on a quot;clientele effectquot;, and tests the predictability of future volatilities in the FX market. We employ...

This paper explores the usefulness of currency futures-spot basis in predicting spot rate changes and currency futures returns. We conjecture that the currency risk premium may be an important component of the basis for long-maturity futures contracts, but may not be so for short-maturities....

This paper investigates the effects of foreign exchange exposure and hedging activities on the abnormal stock price volatility surrounding quarterly earnings announcements. The findings show that abnormal volatility is positively correlated with foreign exchange exposure, suggesting that...

This paper proposes an unconventional method for analyzing the cost of foreign exchange rate mechanisms using option pricing theory. The insurance coverage embedded in the exchange rate regime is analogous to a currency option (or a portfolio of currency options) whose pay-off can be explicitly...

We use exchange traded options on Canadian dollar futures to estimate the market's risk-neutral distribution for the Canadian dollar in the days before and after the Quebec sovereignty referendum. We employ a relatively new technique that places little a-priori structure on the estimated...

Using a vector error correction model I test whether shocks in the funding liquidity conditions in the U.S. and Europe separately explain deviations from the covered interest parity (CIP) between the U.S. Dollar and the Mexican Peso. I find that: (1) Apparent deviations from the CIP seem to be...

Forward exchange rate bias explanation generally falls into two categories – assumption of rational expectation resulting in a risk premium and expectation errors which is systematic. The paper tests the bias in the Indian forward exchange markets using one-month and three month forward...

This paper attempts to uncover the determinants of the dealer bid-ask spread in the foreign exchange market. Prior research has examined the Huang–Masulis model wherein the spread is modelled as a function of dealer competition and volatility. We first extend this model to a much larger...