An Empirical Analysis of Yen-Dollar Currency Swap Market Efficiency

16 Pages Posted: 7 Mar 2004

See all articles by Davinder K. Malhotra

Davinder K. Malhotra

Thomas Jefferson University

Rand Martin

Bloomsburg University of Pennsylvania - College of Business

Vivek Bhargava

Alcorn State University

Abstract

This study investigates pricing efficiency in the yen-dollar currency swap dealer market. Swap mid-rate adjustments are examined to determine how prices adjust to changes in supply and demand. Bid-ask spreads are investigated to find evidence of term premiums. Swap rates are compared to yields on equal maturity bonds to measure default premiums. Results indicate market efficiency as to adjustments to changes in supply and demand and as to term premiums in prices. Default risk premiums in swap rates are inappropriate. Therefore, the market is not completely efficient and dealer swap rates may not relate directly to risks taken.

Keywords: Currency swaps, Bid-ask rates, Interest rate swaps

JEL Classification: F31, G13, G15

Suggested Citation

Malhotra, Davinder K. and Martin, Rand and Bhargava, Vivek, An Empirical Analysis of Yen-Dollar Currency Swap Market Efficiency. International Journal of Business, Vol. 9, No. 2, 2004. Available at SSRN: https://ssrn.com/abstract=513104

Davinder K. Malhotra (Contact Author)

Thomas Jefferson University ( email )

Schoolhouse Lane and Henry Avenue
School of Business Administration
Philadelphia, PA 19144
United States

Rand Martin

Bloomsburg University of Pennsylvania - College of Business ( email )

Bloomsburg, PA 17815
United States

Vivek Bhargava

Alcorn State University ( email )

15 Campus Drive
Natchez, MS 39120
United States
601-304-4319 (Phone)
601-304-4350 (Fax)

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