Browsing by Subject "FX jump risk"

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Open Access
Essays in empirical finance
(2019-12) Serdengeçti, Süleyman
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.
Open Access
Impact of portfolio flows and heterogeneous expectations on FX jumps: evidence from an emerging market
(Elsevier, 2020) Şensoy, Ahmet; Serdengeçti, S.
Motivated by the recent currency crisis in Turkey, we investigate the role of portfolio flows and heterogeneous expectations on the high frequency stochastic jump behavior of the US dollar value against the Turkish lira, one of the most traded emerging market currencies in the world. We group the detected jumps into different types with respect to their direction (up and down) and timing (local and off-shore trading hours). For each type of jumps, we examine their relation with portfolio flows (in the form of equity and bond flows, and carry trade activity), and dispersion in beliefs for the future exchange rate level and key macroeconomic variables. We find that inflows to both equity and bond markets, and increasing carry trade activity significantly reduce the size of jumps and (partially) their intensity. On the other hand, heterogeneous expectations for the future exchange rate level, consumer price index and gross domestic product are found to increase the number of jumps and the average jump size.