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

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  • Christian Jochum

    (International Monetary Fund)

  • Laura Kodres

    (International Monetary Fund)

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    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.

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    Bibliographic Info

    Article provided by Palgrave Macmillan in its journal Staff Papers - International Monetary Fund.

    Volume (Year): 45 (1998)
    Issue (Month): 3 (September)
    Pages: 486-521

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    Handle: RePEc:pal:imfstp:v:45:y:1998:i:3:p:486-521

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    Cited by:
    1. Lourdes Treviño, 2005. "Development and volume growth of organized derivatives trade in emerging markets," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(2), pages 31-82, November.
    2. Antoniou, Antonios & Koutmos, Gregory & Pericli, Andreas, 2005. "Index futures and positive feedback trading: evidence from major stock exchanges," Journal of Empirical Finance, Elsevier, vol. 12(2), pages 219-238, March.
    3. Röthig, Andreas, 2004. "Currency futures and currency crises," Publications of Darmstadt Technical University, Institute of Economics (VWL) 4022, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL).
    4. Laurent Calvet & Martin Gonzalez-Eiras & Paolo Sodini, 2001. "Financial Innovation, Market Participation and Asset Prices," Harvard Institute of Economic Research Working Papers 1928, Harvard - Institute of Economic Research.
    5. Tremblay, Rodrigue, 2000. "Les facteurs déclencheurs des crises financières internationales," L'Actualité Economique, Société Canadienne de Science Economique, vol. 76(3), pages 423-436, septembre.

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