Tales of Tails: Jumps in Currency Markets

68 Pages Posted: 27 Jul 2016

See all articles by Suzanne S. Lee

Suzanne S. Lee

Georgia Institute of Technology - Finance Area

Minho Wang

Georgia Institute of Technology - Finance Area

Date Written: July 26, 2016

Abstract

This paper investigates the predictability of jumps in currency markets and shows the implications for carry trades. Formulating new currency jump analyses, we propose a general method to estimate the determinants of jump sizes and intensities. We employ a large panel of high-frequency data to reveal significant predictive relationships between currency jumps and national fundamentals. In addition, we identify intraday patterns such as multiple currency jump clustering and time-of-day effects. U.S. macroeconomic information releases - particularly FOMC announcements - lead to currency jumps. Using these jump predictors to construct jump-robust carry trades, investors can mitigate the left tail risks.

Keywords: foreign currency, jump robust carry trade, jump prediction, general jump regression

JEL Classification: G15, F31, C14

Suggested Citation

Lee, Suzanne S. and Wang, Minho, Tales of Tails: Jumps in Currency Markets (July 26, 2016). Available at SSRN: https://ssrn.com/abstract=2814699 or http://dx.doi.org/10.2139/ssrn.2814699

Suzanne S. Lee (Contact Author)

Georgia Institute of Technology - Finance Area ( email )

800 West Peachtree Street NW
Atlanta, GA 30332
United States

Minho Wang

Georgia Institute of Technology - Finance Area ( email )

800 West Peachtree NW
Atlanta, GA 30308
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
151
rank
188,938
Abstract Views
848
PlumX Metrics