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The Trading Volume of Currency Options and the Spot Exchange Rate

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  • Yaffa Machnes

Abstract

This paper estimates the interrelation between the spot exchange rate of the Israeli currency, the new Israeli shekel, to the U.S. dollar, and the trading volumes of put and call options on the U.S. dollar in the Tel Aviv Stock Exchange. An increase in the trading volume of calls is positively correlated with an increase in the spot exchange rate of the dollar on the same day and the following day, but with a lower coefficient. Similarly, an increase in the trading volume of puts is related to a decrease in the spot price of the dollar on the same day of trade, with a smaller effect on the following day.

Suggested Citation

  • Yaffa Machnes, 2006. "The Trading Volume of Currency Options and the Spot Exchange Rate," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 42(3), pages 91-97, May.
    • Handle: RePEc:mes:emfitr:v:42:y:2006:i:3:p:91-97
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    Cited by:

    1. Ming-Yuan Leon Li & Chun-Nan Chen, 2010. "Examining the interrelation dynamics between option and stock markets using the Markov-switching vector error correction model," Journal of Applied Statistics, Taylor & Francis Journals, vol. 37(7), pages 1173-1191.
    2. Sajid Ali, 2016. "How does Interest rate effect Exchange rate of Pakistan. Evidence of ARDL Bound Testing Approach," Journal of Finance and Economics Research, Geist Science, Iqra University, Faculty of Business Administration, vol. 1(2), pages 119-133, October.

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