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Editor: Universidad Carlos III de Madrid. Departamento de Economía

Issued date: 2007-10

ISSN: 2340-5031

Serie-No.: UC3M Working papers. Economics07-39

Keywords: Exchange rate variability , Heterogeneity , Volume-volatility relation , Liquidity

JEL Classification: C53 , F31

Rights: Atribución-NoComercial-SinDerivadas 3.0 España

Abstract:We study the role played by geographic and bank-size heterogeneity in the relationbetween exchange rate variability and market activity. We find some support for thehypothesis that increases in short-term global interbank market activity, which can beintWe study the role played by geographic and bank-size heterogeneity in the relationbetween exchange rate variability and market activity. We find some support for thehypothesis that increases in short-term global interbank market activity, which can beinterpreted as due to variation in information arrival, increase variability. However, ourresults do not suggest that local short-term activity increases variability. With respect tolong-term market activity, which can be interpreted as a measure of liquidity, we findthat large and small banks have opposite effects. Specifically, our results suggest thatthe local group of large banks liquidity increases variability, whereas the local group ofsmall banks liquidity reduces variability.+-





Author: Rime, Dagfinn; Sucarrat, Genaro

Source: http://e-archivo.uc3m.es


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Universidad Carlos III de Madrid Repositorio institucional e-Archivo http:--e-archivo.uc3m.es Departamento de Economía DE - Working Papers.
Economics.
WE 2007-10 Exchange rate variability, market activity and heterogeneity Rime, Dagfinn http:--hdl.handle.net-10016-984 Descargado de e-Archivo, repositorio institucional de la Universidad Carlos III de Madrid Working Paper 07-70 Economic Series (39) October 2007 Departamento de Economía Universidad Carlos III de Madrid Calle Madrid, 126 28903 Getafe (Spain) Fax (34) 91 6249875 Exchange Rate Variability, Market Activity and Heterogeneity∗ Dagfinn RIME† and Genaro SUCARRAT‡ Abstract We study the role played by geographic and bank-size heterogeneity in the relation between exchange rate variability and market activity.
We find some support for the hypothesis that increases in short-term global interbank market activity, which can be interpreted as due to variation in information arrival, increase variability.
However, our results do not suggest that local short-term activity increases variability.
With respect to long-term market activity, which can be interpreted as a measure of liquidity, we find that large and small banks have opposite effects.
Specifically, our results suggest that the local group of large banks liquidity increases variability, whereas the local group of small banks liquidity reduces variability. Keywords: Exchange Rate Variability, Heterogeneity, Volume-Volatility Relation, Liquidity JEL Classification: C53, F31 ∗ We are greatly indebted to Luc Bauwens for allowing us to draw on our joint research without wishing to hold him responsible for the result, and for his comments and suggestions.
We are also indebted to various people for useful questions, comments or suggestions at different stages, including Farooq Akram, Vincent Bodart, Andreas Heinen, Sebastien Laurent and Fatimeh Shadman.
A special thanks to Erik Meyer and Janett Skjelvik at the statistics department of Norges B...





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