The Impact of the Japanese Banking Crisis on the Intraday FX Market
AbstractUsing the tick-by-tick yen/dollar exchange rate, this paper examines the effect of Japanese banking crisis in late 1997 on the foreign exchange market. By high-frequency methodology, GARCH estimation and variance-ratio tests, the existence of a structural break in the foreign exchange market at the onset of the crisis is detected. We show a reversed pattern in return volatility after the series of bankruptcies. From the microstructure analysis, it is found that the change in exchange rate dynamics can be attributed to a change in strategic foreign exchange trade behavior. The result provides new insights into the trading activities of market makers at the onset of bank failures
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Bibliographic InfoPaper provided by Econometric Society in its series Econometric Society 2004 Far Eastern Meetings with number 679.
Date of creation: 11 Aug 2004
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Intraday exchange rate; Banking crisis; GARCH; microstructure;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- F31 - International Economics - - International Finance - - - Foreign Exchange
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
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