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

April 26, 2017currencies destabilize emerging Futures introduction market underlying

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

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Author InfoChristian Jochum (International Monetary Fund) Laura Kodres (International Monetary Fund) 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 is employed to estimate volatility. Copyright 1998, International Monetary Fund Download InfoTo download: If you experience problems downloading a file, check if you have the proper application to view it first. Informatio