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Return, Trading Volume, and Market Depth in Currency Futures Markets

Author

Listed:
  • Ai-ru (Meg) Cheng

    (University of California, Santa Cruz)

  • Yin-Wong Cheung

    (University of California, Santa Cruz)

Abstract

We use a class of stochastic volatility models with multiple latent factors to investigate the joint dynamics of return, trading volume, and open interest (a proxy for market depth) in currency futures markets. In accordance with theory, the empirical evidence indicates that there is more than one latent factor affecting these three variables. However, the evidence is ambivalent on the choice between two- and three-latent-factor models. These three variables also display different patterns of information spillovers across currency futures.

Suggested Citation

  • Ai-ru (Meg) Cheng & Yin-Wong Cheung, 2008. "Return, Trading Volume, and Market Depth in Currency Futures Markets," Working Papers 202008, Hong Kong Institute for Monetary Research.
    • Handle: RePEc:hkm:wpaper:202008
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    References listed on IDEAS

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    Cited by:

    1. Gurnain Kaur Pasricha, 2009. "Bank Competition and International Financial Integration: Evidence using a new index," FIW Working Paper series 037, FIW.

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    More about this item

    Keywords

    Stochastic Volatility Model; Multiple Latent Factors; Model Comparison; Volatility Spillovers;
    All these keywords.

    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; State Space Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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