Essays in empirical finance
Author(s)
Advisor
Date
2019-12Publisher
Bilkent University
Language
English
Type
ThesisItem Usage Stats
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Abstract
This thesis comprise three essays that investigate foreign exchange market volatility
and its dynamics using high frequency exchange rate data. In the first essay, we
decompose the jump component of USDTRY exchange rate volatility and investigate
association of jump frequencies and sizes with portfolio
ows, carry trade activity and
proxies for heterogeneous expectations derived from foreign exchange rate forecasts,
currency options and forecasts for key macro-economic variables. The findings of
the essay show that portfolio
ows, particularly bond
ows significantly reduce size
and frequency of jumps. Moreover, we observe significant increases in jump size
and frequencies with increasing dispersion in beliefs in future exchange rate level
and CPI. In the second essay, we study the dynamics of return and liquidity jumps
for USDMXN, USDTRY and USDZAR exchange rates. The findings of the essay
show that the duration between consecutive return jump arrivals are significantly
reduced by average liquidity level in the same period. Furthermore, arrival rates
of both liquidity and return jumps are significantly affected by market-wide risk
and liquidity factors and key macroeconomic news releases. In the third essay, we
investigate the trading volume and volatility nexus for USDTRY exchange rate by
using local banks' foreign exchange transaction volume data. In this context, foreign
currency denominated spot, forward and swap transactions in with local and foreign
customers and between each other for intraday realized volatility of different trading
sessions. The findings of this study reveal that positive contemporaneous relationship
between trading volume and volatility is evident for local customers and in local
trading sessions. Moreover, dispersion in expectations for future foreign exchange
rate strengthens this relationship.
Keywords
FX jump riskFX liquidity
Heterogeneous expectations
High-frequency analysis
Volume-volatility nexus