Does the Introduction of Futures on Emerging Market Currencies Destabilize the Underlying Currencies?

39 Pages Posted: 15 Feb 2006

See all articles by Christian Jochum

Christian Jochum

University of St. Gallen

Laura E. Kodres

International Monetary Fund (IMF) - Research Department

Date Written: February 1998

Abstract

Recent interest in futures contracts on emerging market currencies has raised concerns among some central bank authorities about their ability to maintain stable currencies. This paper presents empirical results examining the influence of the Mexican peso, the Brazilian real, and the Hungarian forint futures contracts on the respective spot markets. While measures of linear dependence and feedback indicate strong connections between the respective markets, futures volatility does not significantly explain spot market volatility, nor does it increase after futures introductions. To account for the characteristics of the spot and futures returns a SWARCH model has been employed to estimate volatility.

Keywords: volatility spillover, emerging markets, SWARCH

JEL Classification: C22, G15

Suggested Citation

Jochum, Christian and Kodres, Laura E., Does the Introduction of Futures on Emerging Market Currencies Destabilize the Underlying Currencies? (February 1998). IMF Working Paper No. 98/13, Available at SSRN: https://ssrn.com/abstract=882234

Christian Jochum (Contact Author)

University of St. Gallen ( email )

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Laura E. Kodres

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6161 (Phone)
202-623-6339 (Fax)

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