We investigate the impacts of financial investors in commodity markets using intraday trade-and- quote data for commodity futures. We find strong evidence of order flows and price impacts in agricultural futures markets associated with changes in the positions of index traders reported by the CFTC. These order flows and price impacts are consistent with the magnitudes of the index flows, and are concentrated in the minutes just prior to daily futures settlement, when the price impact of order flow is generally lowest. While we confirm the positive returns around the issuance of commodity-linked notes documented by Henderson, Pearson, and Wang (2015), we find that these notes are an order of magnitude too small for the price impacts of hedging trades to explain these returns. We provide evidence that the positive returns are more consistent with CLN issuance responding to commodity prices rather than vice-versa.
{"title":"Order Flows and Financial Investor Impacts in Commodity Futures Markets","authors":"M. Ready, Robert Ready","doi":"10.2139/ssrn.3164757","DOIUrl":"https://doi.org/10.2139/ssrn.3164757","url":null,"abstract":"We investigate the impacts of financial investors in commodity markets using intraday trade-and- quote data for commodity futures. We find strong evidence of order flows and price impacts in agricultural futures markets associated with changes in the positions of index traders reported by the CFTC. These order flows and price impacts are consistent with the magnitudes of the index flows, and are concentrated in the minutes just prior to daily futures settlement, when the price impact of order flow is generally lowest. While we confirm the positive returns around the issuance of commodity-linked notes documented by Henderson, Pearson, and Wang (2015), we find that these notes are an order of magnitude too small for the price impacts of hedging trades to explain these returns. We provide evidence that the positive returns are more consistent with CLN issuance responding to commodity prices rather than vice-versa.","PeriodicalId":381709,"journal":{"name":"ERN: International Finance (Topic)","volume":"30 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-10-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115090535","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}
Recent findings that suggest a robust negative association between changes in the cross-currency basis and the broad dollar have taken center stage in the international finance literature. In this article, we revisit this issue, from a purely empirical, data-driven perspective, using G10 and 10 emerging market currencies, and employing dynamic correlations, rather than static correlations, at different rolling windows. Overall, results obtained do not support a consistently negative dynamic relation between changes in the basis and the dollar, even in the post-crisis era, especially at short rolling windows. At the same time, as evidenced by the negative correlations in some historical periods, a negative comovement between changes in the basis and the dollar cannot be fully ruled out, particularly at longer rolling windows. Hence the nature of the relation is dynamic, varying in direction from negative to positive or vice-versa. As such, like nearly everything else in the financial markets, the comovement between changes in the basis and the dollar is anything but directionally static. This result has broader implications for optimal positioning in the cross-currency basis swap markets.
{"title":"The Dollar and Deviations from Covered Interest Parity Revisited: New Insights from Dynamic Comovements","authors":"K. Agudze, O. Ibhagui, Bolarinwa Thompson","doi":"10.2139/ssrn.3513427","DOIUrl":"https://doi.org/10.2139/ssrn.3513427","url":null,"abstract":"Recent findings that suggest a robust negative association between changes in the cross-currency basis and the broad dollar have taken center stage in the international finance literature. In this article, we revisit this issue, from a purely empirical, data-driven perspective, using G10 and 10 emerging market currencies, and employing dynamic correlations, rather than static correlations, at different rolling windows. Overall, results obtained do not support a consistently negative dynamic relation between changes in the basis and the dollar, even in the post-crisis era, especially at short rolling windows. At the same time, as evidenced by the negative correlations in some historical periods, a negative comovement between changes in the basis and the dollar cannot be fully ruled out, particularly at longer rolling windows. Hence the nature of the relation is dynamic, varying in direction from negative to positive or vice-versa. As such, like nearly everything else in the financial markets, the comovement between changes in the basis and the dollar is anything but directionally static. This result has broader implications for optimal positioning in the cross-currency basis swap markets.","PeriodicalId":381709,"journal":{"name":"ERN: International Finance (Topic)","volume":"17 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126965787","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}
Pub Date : 2019-07-01DOI: 10.5089/9781498321549.001
P. Mathieu, M. Pani, Shiyuan Chen, R. Maino
Using data collected from pan-African banks’ (PABs), balance sheets and other sources (Orbis, Fitch), this study identifies some key patterns of cross-border investment in bank subsidiaries by key banking groups in sub-Saharan Africa (SSA) and discusses some of the determinants of this investment. Using a gravity model relating the annual value of a banking group’s investment in the net equity of its subsidiaries to a set of explanatory variables, the analysis finds that cross-border banking is in part driven by a search for yield, diversification, and expansion for strategic reasons.
{"title":"Drivers of Cross-Border Banking in Sub-Saharan Africa","authors":"P. Mathieu, M. Pani, Shiyuan Chen, R. Maino","doi":"10.5089/9781498321549.001","DOIUrl":"https://doi.org/10.5089/9781498321549.001","url":null,"abstract":"Using data collected from pan-African banks’ (PABs), balance sheets and other sources (Orbis, Fitch), this study identifies some key patterns of cross-border investment in bank subsidiaries by key banking groups in sub-Saharan Africa (SSA) and discusses some of the determinants of this investment. Using a gravity model relating the annual value of a banking group’s investment in the net equity of its subsidiaries to a set of explanatory variables, the analysis finds that cross-border banking is in part driven by a search for yield, diversification, and expansion for strategic reasons.","PeriodicalId":381709,"journal":{"name":"ERN: International Finance (Topic)","volume":"130 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127512319","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}
A. Kuznetsov, A. Kharitonchik, Aigul Berdigulova, K. Fyodorov
This Special Report examines the pass-through effect of the exchange rate on inflation in member countries of the Eurasian Development Bank. Special attention is paid to assessing pass-through effect changes that occurred in recent years and to analyzing asymmetric and non-linear relationships between exchange rates and inflation in the region’s countries. The results obtained confirm the exchange rates’ significance for inflation movements in EDB economies. That said, in 2015-2018 the exchange rate’s pass-through effect on inflation decreased in magnitude in most of the States under review, possibly on account of the monetary and exchange rate policy reforms implemented – in particular, a switch to a more flexible exchange rate and more effective monetary policies. In a number of Eurasian Development Bank member countries, the pass-through was noted to have an asymmetric effect, with consumer prices being more responsive to weakening than to strengthening of their national currencies.
{"title":"EDB Special Report 2019. Exchange Rate Pass-Through Effects on Inflation in EDB Member Countries","authors":"A. Kuznetsov, A. Kharitonchik, Aigul Berdigulova, K. Fyodorov","doi":"10.2139/ssrn.3412399","DOIUrl":"https://doi.org/10.2139/ssrn.3412399","url":null,"abstract":"This Special Report examines the pass-through effect of the exchange rate on inflation in member countries of the Eurasian Development Bank. Special attention is paid to assessing pass-through effect changes that occurred in recent years and to analyzing asymmetric and non-linear relationships between exchange rates and inflation in the region’s countries. The results obtained confirm the exchange rates’ significance for inflation movements in EDB economies. That said, in 2015-2018 the exchange rate’s pass-through effect on inflation decreased in magnitude in most of the States under review, possibly on account of the monetary and exchange rate policy reforms implemented – in particular, a switch to a more flexible exchange rate and more effective monetary policies. In a number of Eurasian Development Bank member countries, the pass-through was noted to have an asymmetric effect, with consumer prices being more responsive to weakening than to strengthening of their national currencies.","PeriodicalId":381709,"journal":{"name":"ERN: International Finance (Topic)","volume":"40 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-06-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116341834","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 study investigates the impact of exchange rate misalignment on outward capital flight in Botswana over the period 1980–2015. The study uses the autoregressive distributed lag (ARDL) approach to cointegration and the Toda and Yamamoto (1995) approach to Granger causality. Botswana’s currency misalignment was caused by current account imbalances. The most important determinant of capital flight from Botswana is trade openness, which indicates that exportable commodities are misinvoiced leading to net capital outflows. Our main findings show that in the long-run, when the currency is overvalued, the volume of capital flight through trade misinvoicing declines and increasing foreign reserves does not reduce outward capital flight. However, when the currency is undervalued, the volume of capital flight through trade misinvoicing increases and foreign reserves reduce outward capital flight. Investors respond more to prospects of devaluation than to inflation. Botswana should tolerate overvaluation of the pula of only up to 5%. When the pula is overvalued beyond 5%, capital flight increases substantially. The government has to formulate trade regulations and monitor imported and exported commodities. Botswana should also implement capital controls to limit capital smuggling and maintain monetary autonomy.
{"title":"Exchange Rate Misalignment and Capital Flight from Botswana: A Cointegration Approach with Risk Thresholds","authors":"M. Bosupeng, Janet Dzator, Andrew Nadolny","doi":"10.2139/ssrn.3407841","DOIUrl":"https://doi.org/10.2139/ssrn.3407841","url":null,"abstract":"This study investigates the impact of exchange rate misalignment on outward capital flight in Botswana over the period 1980–2015. The study uses the autoregressive distributed lag (ARDL) approach to cointegration and the Toda and Yamamoto (1995) approach to Granger causality. Botswana’s currency misalignment was caused by current account imbalances. The most important determinant of capital flight from Botswana is trade openness, which indicates that exportable commodities are misinvoiced leading to net capital outflows. Our main findings show that in the long-run, when the currency is overvalued, the volume of capital flight through trade misinvoicing declines and increasing foreign reserves does not reduce outward capital flight. However, when the currency is undervalued, the volume of capital flight through trade misinvoicing increases and foreign reserves reduce outward capital flight. Investors respond more to prospects of devaluation than to inflation. Botswana should tolerate overvaluation of the pula of only up to 5%. When the pula is overvalued beyond 5%, capital flight increases substantially. The government has to formulate trade regulations and monitor imported and exported commodities. Botswana should also implement capital controls to limit capital smuggling and maintain monetary autonomy.","PeriodicalId":381709,"journal":{"name":"ERN: International Finance (Topic)","volume":"6 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-06-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128577446","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}
Analysis of the current situation shows that the main factor behind increasing demand in foreign exchange markets is importation. Fiscal expansion and stable exchange rate have been promoting imports throughout the past two years.
从目前的情况分析，外汇市场需求增加的主要因素是进口。过去两年，财政扩张和汇率稳定一直在促进进口。
{"title":"CESD Research Brief: Should We Expect a Change in the Rate of Azerbaijani Manat in Context of High Demand for US Dollar?","authors":"Cesd Research Group","doi":"10.2139/ssrn.3485597","DOIUrl":"https://doi.org/10.2139/ssrn.3485597","url":null,"abstract":"Analysis of the current situation shows that the main factor behind increasing demand in foreign exchange markets is importation. Fiscal expansion and stable exchange rate have been promoting imports throughout the past two years.","PeriodicalId":381709,"journal":{"name":"ERN: International Finance (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-03-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131218869","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}
Russian Abstract: В статье авторами на основании изученного мирового опыта предлагается классификация систем переводов денег и ценностей (СПДЦ), рассматривается место системы "хавала", дается превентивная оценка связи системы "хавала" с финансированием терроризма, обобщаются финансово-экономические угрозы национальной безопасности, характерные для системы "хавала".
English Abstract: In this article the author on the basis of international experience suggests classification of transactions carried out by the money or value transfer systems (MVTS), the author studies the role of Hawala system, the preventive assessment of the connection of the Hawala system with the terrorism financing is given, and threats to national security caused by Hawala system are summarized.
{"title":"Оценка финансовых операций в международной системе \"хавала\" в контексте предотвращения угроз национальной безопасности (Assessment of Financial Transactions through International Havala System in the Context of Preventing the Threats to National Security)","authors":"T. Ignatova","doi":"10.2139/ssrn.3300697","DOIUrl":"https://doi.org/10.2139/ssrn.3300697","url":null,"abstract":"<b>Russian Abstract:</b> В статье авторами на основании изученного мирового опыта предлагается классификация систем переводов денег и ценностей (СПДЦ), рассматривается место системы \"хавала\", дается превентивная оценка связи системы \"хавала\" с финансированием терроризма, обобщаются финансово-экономические угрозы национальной безопасности, характерные для системы \"хавала\".<br><br><b>English Abstract:</b> In this article the author on the basis of international experience suggests classification of transactions carried out by the money or value transfer systems (MVTS), the author studies the role of Hawala system, the preventive assessment of the connection of the Hawala system with the terrorism financing is given, and threats to national security caused by Hawala system are summarized.","PeriodicalId":381709,"journal":{"name":"ERN: International Finance (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-12-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131132895","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}
International trade studies have higher macro elasticity measures compared to international finance studies, which has evoked mixed policy implications regarding the effects of a change in trade costs versus exchange rates on welfare measures. This so-called international elasticity puzzle is investigated in this paper by drawing attention to the alternative strategies that the two literatures use for the aggregation of foreign products in consumer utility functions. Using the implications of having a finite number of foreign countries in nested CES frameworks that are consistent with the two literatures, the discrepancy between the elasticity measures is explained by showing theoretically and confirming empirically that the macro elasticity in international trade is a weighted average of the macro elasticity in international finance and the corresponding elasticity of substitution across products of foreign source countries.
{"title":"Understanding the International Elasticity Puzzle","authors":"H. Yilmazkuday","doi":"10.2139/ssrn.2847314","DOIUrl":"https://doi.org/10.2139/ssrn.2847314","url":null,"abstract":"International trade studies have higher macro elasticity measures compared to international finance studies, which has evoked mixed policy implications regarding the effects of a change in trade costs versus exchange rates on welfare measures. This so-called international elasticity puzzle is investigated in this paper by drawing attention to the alternative strategies that the two literatures use for the aggregation of foreign products in consumer utility functions. Using the implications of having a finite number of foreign countries in nested CES frameworks that are consistent with the two literatures, the discrepancy between the elasticity measures is explained by showing theoretically and confirming empirically that the macro elasticity in international trade is a weighted average of the macro elasticity in international finance and the corresponding elasticity of substitution across products of foreign source countries.","PeriodicalId":381709,"journal":{"name":"ERN: International Finance (Topic)","volume":"242 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-11-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133033538","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 present an exchange rate model in which a currency’s exchange rate is confined in a wide moving band and a currency crash occurs when the rate breaches the lower boundary. A solution is derived from the standard log exchange rate equation for the model with a smooth-pasting condition at the lower boundary. Using an asymmetric mean-reverting fundamental shock, the solution shows the exchange rate follows a mean-reverting square-root process, which is quasi-bounded at the boundary, and generates left-skewed exchange rate distributions consistent with empirical observations. The probability leakage for the exchange rate across the boundary increases with a weakened mean-reverting force for the exchange rate, suggesting an increase in currency crash risk. The empirical results show the exchange rates of nine major currencies against the US dollar can be calibrated according to the model, where the mean reversion is negatively cointegrated with the risk reversals in currency option markets, as expected by the model, and are consistent with the positive relationship between currency crash risk and risk reversals. The leakage condition for breaching the lower boundaries was met during the 2008 global financial crisis when most of the currencies were under the disaster shock.
{"title":"Exchange Rate Solutions With Currency Crashes","authors":"","doi":"10.2139/ssrn.3290368","DOIUrl":"https://doi.org/10.2139/ssrn.3290368","url":null,"abstract":"We present an exchange rate model in which a currency’s exchange rate is confined in a wide moving band and a currency crash occurs when the rate breaches the lower boundary. A solution is derived from the standard log exchange rate equation for the model with a smooth-pasting condition at the lower boundary. Using an asymmetric mean-reverting fundamental shock, the solution shows the exchange rate follows a mean-reverting square-root process, which is quasi-bounded at the boundary, and generates left-skewed exchange rate distributions consistent with empirical observations. The probability leakage for the exchange rate across the boundary increases with a weakened mean-reverting force for the exchange rate, suggesting an increase in currency crash risk. The empirical results show the exchange rates of nine major currencies against the US dollar can be calibrated according to the model, where the mean reversion is negatively cointegrated with the risk reversals in currency option markets, as expected by the model, and are consistent with the positive relationship between currency crash risk and risk reversals. The leakage condition for breaching the lower boundaries was met during the 2008 global financial crisis when most of the currencies were under the disaster shock.","PeriodicalId":381709,"journal":{"name":"ERN: International Finance (Topic)","volume":"1049 ","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-11-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"120860366","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}
In this paper, I have investigated the out of sample forecast performance for a case study on the determination of the nominal exchange rate for USD vis-à-vis IN¬R under VEC, VAR (in first difference) and Bayesian VAR specification with the help of set of economic theories. The forecast performance of these models is then compared with the random walk model, which is set as a benchmark model for forecast evaluation. The study observed that the structural model under VEC specification have superior predictive ability over BVAR and DVAR. U-statistics suggests that the yield curve model has minimum forecast error up to one year. Moreover, it is also observed that the yield curve, the tailor rule fundamental and augmented sticky price – microstructure model produces significant insight pertaining to the likely behavior in the movement of the exchange rate for a longer horizon up to 3 years through VEC specification.
在本文中，我在一组经济理论的帮助下，研究了在VEC、VAR(在第一差分中)和贝叶斯VAR规范下确定美元对-à-vis In - R名义汇率的样本外预测性能。然后将这些模型的预测性能与随机游走模型进行比较，并将随机游走模型作为预测评价的基准模型。研究发现，VEC规范下的结构模型的预测能力优于BVAR和DVAR。u统计量表明，收益率曲线模型在一年以内具有最小的预测误差。此外，还观察到收益率曲线，裁缝规则基本和增强粘性价格微观结构模型通过VEC规范产生了与长达3年的更长时间内汇率运动的可能行为有关的重要见解。
{"title":"A Survey on the Determination of Nominal Exchange Rate for USD vis-à-vis INR","authors":"Punit Pillin","doi":"10.2139/ssrn.3257239","DOIUrl":"https://doi.org/10.2139/ssrn.3257239","url":null,"abstract":"In this paper, I have investigated the out of sample forecast performance for a case study on the determination of the nominal exchange rate for USD vis-à-vis IN¬R under VEC, VAR (in first difference) and Bayesian VAR specification with the help of set of economic theories. The forecast performance of these models is then compared with the random walk model, which is set as a benchmark model for forecast evaluation. The study observed that the structural model under VEC specification have superior predictive ability over BVAR and DVAR. U-statistics suggests that the yield curve model has minimum forecast error up to one year. Moreover, it is also observed that the yield curve, the tailor rule fundamental and augmented sticky price – microstructure model produces significant insight pertaining to the likely behavior in the movement of the exchange rate for a longer horizon up to 3 years through VEC specification.","PeriodicalId":381709,"journal":{"name":"ERN: International Finance (Topic)","volume":"66 5 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-09-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122535275","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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