How Do Linkages Between Major Exchange Rates Differ When the Daily Quotations Come From Different Times of Day? Analysis Using Bid and Ask Prices and DCC-Copula Models

35 Pages Posted: 12 Aug 2020

See all articles by Małgorzata Doman

Małgorzata Doman

Poznań University of Economics and Business

Ryszard Doman

Adam Mickiewicz University, Poznań

Date Written: July 15, 2020

Abstract

In the paper, we document how the dynamics of linkages between selected major exchange rates changes during a day, depending on the activity of different groups of traders, and show the impact of important events and news on the dependence structures. The exchange rates under scrutiny are EUR/USD, AUD/USD, GBP/USD, and NZD/USD. We consider dai-ly returns calculated using the exchange rates quoted at different times of day. The analysis is performed separately for bid and ask prices. The dynamics of the dependence is modeled by means of DCC-copula models, and the strength of the linkages is described using dynam-ic Spearman’s rho coefficients. Moreover, we obtain the results concerning quantile depend-ence probabilities. The approach used enables us to scrutinize changes in the dynamics of the conditional dependence structure, depending on the time of day, which can be useful in risk management.

Keywords: exchange rates, major currencies, bid, ask, linkages, copula, DCC-copula, Spearman rho, quantile dependence

JEL Classification: G15, F31, C58, C32

Suggested Citation

Doman, Małgorzata and Doman, Ryszard, How Do Linkages Between Major Exchange Rates Differ When the Daily Quotations Come From Different Times of Day? Analysis Using Bid and Ask Prices and DCC-Copula Models (July 15, 2020). Available at SSRN: https://ssrn.com/abstract=3652077 or http://dx.doi.org/10.2139/ssrn.3652077

Małgorzata Doman

Poznań University of Economics and Business ( email )

Al. Niepodległości 10
Poznań, 61-875
Poland

Ryszard Doman (Contact Author)

Adam Mickiewicz University, Poznań ( email )

Uniwersytetu Poznańskiego 4
Poznań, 61-614
Poland

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