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Identifying the Signs of Currency Speculation in Hong Kong's Linked exchange Rate

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  • Li, Kui-Wai

Abstract

This paper identifies the ex ante factors of currency speculation based on the experience of Hong Kong’s three episodes in 1988, 1998 and 2007. The dynamic conditional correlation models are used to study the inter-temporal interactions among the Hang Seng Index, Hang Seng Index futures and exchange rate difference. The logistic model is applied to study the probability of currency speculation. The empirical results indicate that unusual movements in the exchange rate difference, Hang Seng Index premium and open interest of futures contracts can be found in the period prior to and during currency speculations. In addition, the conditional correlation between stock market and exchange rate market declined sharply during the periods of currency speculation. The paper traces the disposition of the speculators.

Suggested Citation

  • Li, Kui-Wai, 2011. "Identifying the Signs of Currency Speculation in Hong Kong's Linked exchange Rate," MPRA Paper 35279, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:35279
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    References listed on IDEAS

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    More about this item

    Keywords

    Currency speculation; linked exchange rate; Hong Kong;

    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
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • N15 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Asia including Middle East
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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