On the surface, cryptocurrencies share important features in common with high sentiment beta stocks. Baker and Wurgler (2007) identify high sentiment betas with small startup firms that have great growth potential. This paper investigates the degree to which, during the period July 18, 2010 to February 26, 2018, the return to bitcoin displayed the characteristics of a high sentiment beta stock. Using a sentiment-dependent factor model, the analysis indicates that in large measure, bitcoin returns resembled returns to high sentiment beta stocks.
{"title":"Bitcoin and Sentiment","authors":"H. Jo, Haehean Park, H. Shefrin","doi":"10.2139/ssrn.3230572","DOIUrl":"https://doi.org/10.2139/ssrn.3230572","url":null,"abstract":"On the surface, cryptocurrencies share important features in common with high sentiment beta stocks. Baker and Wurgler (2007) identify high sentiment betas with small startup firms that have great growth potential. This paper investigates the degree to which, during the period July 18, 2010 to February 26, 2018, the return to bitcoin displayed the characteristics of a high sentiment beta stock. Using a sentiment-dependent factor model, the analysis indicates that in large measure, bitcoin returns resembled returns to high sentiment beta stocks.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"48 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-08-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130420944","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Like any other commodity, a foreign exchange rate in any economy is function of demand and supply, unless regulators controls otherwise. The demand and supply may be aggregate of formal and informal markets. Many a time, informal markets are dominant and it becomes very difficult to capture the data. The recent trend shows an appreciation in the Indian Rupee against the USD. Sapovadia noted in 2007 when Rupee was appreciating against US Dollar; “Indian Rupee stood at INR 44.90 to the USD in April 2006; it dipped to INR 40.57 in third week of May 2007. Skyrocket land prices in urban and urban periphery, rising inflation & interest rate and gossip in the town about NRIs investing in land & banking sector (through formal as well as informal channels) have drawn our attention to test whether INR becoming stronger is reason of market force or unwanted market distortion?” The recent trend since April 2018 is totally reverse and US Dollar is becoming stronger. The paper captures observation made in 2007 and subsequently compares current situation in 2018. Though new dimensions become pertinent in totally a contrast situation in 2018, still several reasons of market trend and its impact on economy remains same.
{"title":"A Stronger or Weaker INR Against USD: Market Force or Market Distortion? A Study on Recent Trends, Its Possible Reasons and Impact on Economy","authors":"V. Sapovadia, S. Patel","doi":"10.2139/ssrn.3209823","DOIUrl":"https://doi.org/10.2139/ssrn.3209823","url":null,"abstract":"Like any other commodity, a foreign exchange rate in any economy is function of demand and supply, unless regulators controls otherwise. The demand and supply may be aggregate of formal and informal markets. Many a time, informal markets are dominant and it becomes very difficult to capture the data. The recent trend shows an appreciation in the Indian Rupee against the USD. Sapovadia noted in 2007 when Rupee was appreciating against US Dollar; “Indian Rupee stood at INR 44.90 to the USD in April 2006; it dipped to INR 40.57 in third week of May 2007. Skyrocket land prices in urban and urban periphery, rising inflation & interest rate and gossip in the town about NRIs investing in land & banking sector (through formal as well as informal channels) have drawn our attention to test whether INR becoming stronger is reason of market force or unwanted market distortion?” The recent trend since April 2018 is totally reverse and US Dollar is becoming stronger. The paper captures observation made in 2007 and subsequently compares current situation in 2018. Though new dimensions become pertinent in totally a contrast situation in 2018, still several reasons of market trend and its impact on economy remains same.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"39 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-07-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131814266","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The uncovered interest rate parity condition lies at the heart of the "impossible trinity", stating that the three objectives of fixed exchange rates, free capital flows, and independent monetary policy cannot be pursued simultaneously. We argue that although monetary unification does indeed eliminate the tension between exchange rates and nominal interest rates, it does not solve the problem of the intrinsic instability of the system. By eliminating the intra-area exchange rates (with a single currency) and interest rate differentials (with a single common policy rate set by the common central bank), the problem of instability is simply transferred to inflation rate differentials, what we call the (impossibility of the) "uncovered inflation rate parity condition" in a monetary union. The analysis of the actual divergences and imbalances in the EMU, then, suggests that failure to respect the "uncovered inflation rate parity condition" in a monetary union may lead to increasing economic and political tensions. Thus we conclude with the application of the Rodrik's political trilemma to the EMU, which epitomises the existential challenges that the EU faces nowadays.
{"title":"The 'Uncovered Inflation Rate Parity' Condition in a Monetary Union","authors":"N. Acocella, Paolo Pasimeni","doi":"10.2139/ssrn.3216406","DOIUrl":"https://doi.org/10.2139/ssrn.3216406","url":null,"abstract":"The uncovered interest rate parity condition lies at the heart of the \"impossible trinity\", stating that the three objectives of fixed exchange rates, free capital flows, and independent monetary policy cannot be pursued simultaneously. We argue that although monetary unification does indeed eliminate the tension between exchange rates and nominal interest rates, it does not solve the problem of the intrinsic instability of the system. By eliminating the intra-area exchange rates (with a single currency) and interest rate differentials (with a single common policy rate set by the common central bank), the problem of instability is simply transferred to inflation rate differentials, what we call the (impossibility of the) \"uncovered inflation rate parity condition\" in a monetary union. The analysis of the actual divergences and imbalances in the EMU, then, suggests that failure to respect the \"uncovered inflation rate parity condition\" in a monetary union may lead to increasing economic and political tensions. Thus we conclude with the application of the Rodrik's political trilemma to the EMU, which epitomises the existential challenges that the EU faces nowadays.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"120 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-06-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114248495","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We apply the GARCH-MIDAS framework to forecast the daily, weekly, and monthly volatility of four highly capitalized Cryptocurrencies (Bitcoin, Etherium, Litecoin, and Ripple) as well as the Cryptocurrency index CRIX. Based on the prediction quality, we determine the most important exogenous drivers of volatility in Cryptocurrency markets. We find that the Global Real Economic Activity outperforms all other economic and financial drivers under investigation. Only the average forecast combination results in lower loss functions. This indicates that the information content of exogenous factors is time-varying and the model averaging approach diversifies the impact of single drivers.
{"title":"Exogenous Drivers of Bitcoin and Cryptocurrency Volatility – A Mixed Data Sampling Approach to Forecasting","authors":"T. Walther, Tony Klein, Elie Bouri","doi":"10.2139/ssrn.3192474","DOIUrl":"https://doi.org/10.2139/ssrn.3192474","url":null,"abstract":"We apply the GARCH-MIDAS framework to forecast the daily, weekly, and monthly volatility of four highly capitalized Cryptocurrencies (Bitcoin, Etherium, Litecoin, and Ripple) as well as the Cryptocurrency index CRIX. Based on the prediction quality, we determine the most important exogenous drivers of volatility in Cryptocurrency markets. We find that the Global Real Economic Activity outperforms all other economic and financial drivers under investigation. Only the average forecast combination results in lower loss functions. This indicates that the information content of exogenous factors is time-varying and the model averaging approach diversifies the impact of single drivers.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"9 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127458126","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
On August 11, 2015, China revamped its procedure for setting the official central parity of the renminbi (RMB) against the US dollar. Our empirical investigation suggests that the intertemporal dynamics of China’s central parity shifted after this policy change, though the deviation of the RMB offshore rate from the central parity and the US dollar index remained the two significant determinants of central parity after the policy change. In contrast, the VIX index only offered explanatory power up to August 2015. Thereafter, the onshore RMB rate and the difference between the one-month offshore and onshore RMB forward points have significant impacts on the central parity. While the US dollar index effect remains, we find no evidence of a rate-fixing role for the RMB exchange rate against the currency basket announced by China in December 2015.
{"title":"The Renminbi Central Parity: An Empirical Investigation","authors":"Y. Cheung, C. Hui, Andrew Tsang","doi":"10.2139/ssrn.2797968","DOIUrl":"https://doi.org/10.2139/ssrn.2797968","url":null,"abstract":"On August 11, 2015, China revamped its procedure for setting the official central parity of the renminbi (RMB) against the US dollar. Our empirical investigation suggests that the intertemporal dynamics of China’s central parity shifted after this policy change, though the deviation of the RMB offshore rate from the central parity and the US dollar index remained the two significant determinants of central parity after the policy change. In contrast, the VIX index only offered explanatory power up to August 2015. Thereafter, the onshore RMB rate and the difference between the one-month offshore and onshore RMB forward points have significant impacts on the central parity. While the US dollar index effect remains, we find no evidence of a rate-fixing role for the RMB exchange rate against the currency basket announced by China in December 2015.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"35 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-04-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126969506","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We provide a model of an endowment economy with two competing, but intrinsically worthless currencies (Dollar, Bitcoin). Dollars are supplied by a central bank to achieve its inflation target, while the Bitcoin supply grows deterministically. Our fundamental pricing equation implies in its simplest form that Bitcoin prices form a martingale. “Mutual impatience” implies absence of speculation. Price volatility therefore does not invalidate the medium-of-exchange function. Bitcoin block rewards are not a tax on Bitcoin holders: they are financed with a Dollar tax. We discuss monetary policy implications, Bitcoin production, taxation, welfare and entry, and characterize the range of equilibria.
{"title":"Some Simple Bitcoin Economics","authors":"L. Schilling, H. Uhlig","doi":"10.2139/ssrn.3155310","DOIUrl":"https://doi.org/10.2139/ssrn.3155310","url":null,"abstract":"We provide a model of an endowment economy with two competing, but intrinsically worthless currencies (Dollar, Bitcoin). Dollars are supplied by a central bank to achieve its inflation target, while the Bitcoin supply grows deterministically. Our fundamental pricing equation implies in its simplest form that Bitcoin prices form a martingale. “Mutual impatience” implies absence of speculation. Price volatility therefore does not invalidate the medium-of-exchange function. Bitcoin block rewards are not a tax on Bitcoin holders: they are financed with a Dollar tax. We discuss monetary policy implications, Bitcoin production, taxation, welfare and entry, and characterize the range of equilibria.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"18 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127752909","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Decentralised issued crypto "currencies", like bitcoin, have the potential to drastically change the existing retail payment system and even the monetary system. Insights into the factors that influence their adoption are therefore crucial. Using a large representative sample of retailers that sell their products online, we find that acceptance of crypto payments is currently modest (2%), but there is substantial interest among retailers to adopt crypto payments in the near future. Consumer demand, net transactional benefits and perceived adoption effort influence adoption intention and actual acceptance by retailers. Regarding non-financial factors, our findings suggest that service providers who act as intermediaries between retailers, their customers, and providers of payment instruments play a crucial role as facilitators of competition and innovation in the online retail payments market by lowering such barriers. The most serious barrier for crypto acceptance seems to be a lack of consumer demand. Information from consumers indicate that those who possess cryptos, don't use it for online payments. It seems therefore unlikely that the adoption of cryptos by retailers will increase substantially, making it highly unlikely that cryptos like bitcoin will drastically change the existing retail payment system.
{"title":"What Drives Bitcoin Adoption by Retailers","authors":"N. Jonker","doi":"10.2139/ssrn.3134404","DOIUrl":"https://doi.org/10.2139/ssrn.3134404","url":null,"abstract":"Decentralised issued crypto \"currencies\", like bitcoin, have the potential to drastically change the existing retail payment system and even the monetary system. Insights into the factors that influence their adoption are therefore crucial. Using a large representative sample of retailers that sell their products online, we find that acceptance of crypto payments is currently modest (2%), but there is substantial interest among retailers to adopt crypto payments in the near future. Consumer demand, net transactional benefits and perceived adoption effort influence adoption intention and actual acceptance by retailers. Regarding non-financial factors, our findings suggest that service providers who act as intermediaries between retailers, their customers, and providers of payment instruments play a crucial role as facilitators of competition and innovation in the online retail payments market by lowering such barriers. The most serious barrier for crypto acceptance seems to be a lack of consumer demand. Information from consumers indicate that those who possess cryptos, don't use it for online payments. It seems therefore unlikely that the adoption of cryptos by retailers will increase substantially, making it highly unlikely that cryptos like bitcoin will drastically change the existing retail payment system.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"13 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116760548","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper provides an estimation of the reaction of the firm-level exports consecutive to real exchange rate movements – the exchange rate elasticity of exports. Following recent theoretical works emphasizing the role played by firm heterogeneity, we test in particular how the exchange rate elasticity may be affected by firm-level productivity, and how the heterogeneous reaction of different firms may contribute to shape the aggregate reaction of countries’ exports. The analysis relies on a unique cross-country micro-based dataset of exporters available for 11 European countries (2001-2011), which details in particular information about ??rms’ productivity and export performance. Our results show that while the average exchange rate elasticity across firms is quite weak, it is also highly heterogeneous. The least productive firms within each country and sector tend to react more to real exchange rate movements than the most productive firms. This weak reaction of highly productive and large exporters tends to reduce the macroeconomic exchange rate elasticity in all countries. Cross-country differences in the shape of the productivity distribution among exporters have a strong influence on the macroeconomic exchange rate elasticity: countries populated with a higher density of low productive firms tend to respond more to exchange rate movements in terms of aggregate exports than countries populated with highly productive exporters.
{"title":"Exchange Rate Movements, Firm-Level Exports and Heterogeneity","authors":"Antoine Berthou, E. Dhyne","doi":"10.2139/ssrn.3123035","DOIUrl":"https://doi.org/10.2139/ssrn.3123035","url":null,"abstract":"This paper provides an estimation of the reaction of the firm-level exports consecutive to real exchange rate movements – the exchange rate elasticity of exports. Following recent theoretical works emphasizing the role played by firm heterogeneity, we test in particular how the exchange rate elasticity may be affected by firm-level productivity, and how the heterogeneous reaction of different firms may contribute to shape the aggregate reaction of countries’ exports. The analysis relies on a unique cross-country micro-based dataset of exporters available for 11 European countries (2001-2011), which details in particular information about ??rms’ productivity and export performance. Our results show that while the average exchange rate elasticity across firms is quite weak, it is also highly heterogeneous. The least productive firms within each country and sector tend to react more to real exchange rate movements than the most productive firms. This weak reaction of highly productive and large exporters tends to reduce the macroeconomic exchange rate elasticity in all countries. Cross-country differences in the shape of the productivity distribution among exporters have a strong influence on the macroeconomic exchange rate elasticity: countries populated with a higher density of low productive firms tend to respond more to exchange rate movements in terms of aggregate exports than countries populated with highly productive exporters.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"167 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134421349","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper investigates whether Bitcoin can hedge and diversify risk against the Euro STOXX, Nikkei, Shanghai A-Share, S&P 500, and the TSX Index, and examines the dynamics of these abilities over different data frequencies. Pairwise GARCH models and constant conditional correlation models are used for daily, weekly, and monthly returns from October 2010 to October 2017. We find that Bitcoin is an effective strong hedge for all these indices under monthly data frequency. However, daily and weekly returns do not demonstrate strong hedge properties. Further frequency dependence model tests reveal that Bitcoin returns are strong hedgings against S&P and Euro indices over medium data frequency, and also against the Shanghai A-Share over low data frequency.
{"title":"Holding Bitcoin Longer: The Dynamic Hedging Abilities of Bitcoin","authors":"W. Chan, Minh Le, Yan Wendy Wu","doi":"10.2139/ssrn.3090582","DOIUrl":"https://doi.org/10.2139/ssrn.3090582","url":null,"abstract":"This paper investigates whether Bitcoin can hedge and diversify risk against the Euro STOXX, Nikkei, Shanghai A-Share, S&P 500, and the TSX Index, and examines the dynamics of these abilities over different data frequencies. Pairwise GARCH models and constant conditional correlation models are used for daily, weekly, and monthly returns from October 2010 to October 2017. We find that Bitcoin is an effective strong hedge for all these indices under monthly data frequency. However, daily and weekly returns do not demonstrate strong hedge properties. Further frequency dependence model tests reveal that Bitcoin returns are strong hedgings against S&P and Euro indices over medium data frequency, and also against the Shanghai A-Share over low data frequency.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"41 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-12-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126779840","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Created in 2009, bitcoin reaches record heights every week, having hit $17,000 on 11 December 2017 - the first day a bitcoin futures contract traded at the CBOE - versus $1,000 in early 2017 and $1 in 2001. Yet there is still no consensus among economists whether bitcoin comprises a new decentralised currency free of central bank influence, or is a purely speculative instrument.
{"title":"Bitcoin: Speculative Bubble or Future Value?","authors":"Eric Pichet","doi":"10.2139/ssrn.3103706","DOIUrl":"https://doi.org/10.2139/ssrn.3103706","url":null,"abstract":"Created in 2009, bitcoin reaches record heights every week, having hit $17,000 on 11 December 2017 - the first day a bitcoin futures contract traded at the CBOE - versus $1,000 in early 2017 and $1 in 2001. Yet there is still no consensus among economists whether bitcoin comprises a new decentralised currency free of central bank influence, or is a purely speculative instrument.","PeriodicalId":126646,"journal":{"name":"PSN: Exchange Rates & Currency (International) (Topic)","volume":"470 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-11-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114529353","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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