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on International Finance |
| By: | Victor Pontines |
| Abstract: | Along the lines of the treatment effects literature, this paper empirically revisits the issue of the so-called “intervention effect”, i.e., the effectiveness of official foreign exchange intervention on the movement of the exchange rate. We extended in a continuous treatment setting the inverse probability weights estimator developed by Jorda and Taylor (2015) and Angrist, Jorda and Kuersteiner (forthcoming) to control for self-selection bias. We then illustrate the application of this technique by examining the effectiveness of official daily interventions by Japanese monetary authorities in the JPY/USD market. In accordance with existing evidence using this intervention data, this paper finds that periods of intervention characterized by large, infrequent and sporadic interventions are effective in moving the changes in the exchange rate in the desired direction. We also find evidence that the intervention effect does not last longer than two days after the intervention takes place. |
| Keywords: | Foreign Exchange Intervention, Self-selection, JPY/USD Exchange Rate, Censored Data, Tobit, Inverse Probability Weights, Local Projections |
| JEL: | C14 C32 E52 E58 F31 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2018-13&r=ifn |
| By: | David-Jan Jansen |
| Abstract: | This paper studies the intraday spillovers of the 2010 U.S. Flash Crash to international equity markets. We document a substantial and almost immediate echo of the crash in Latin America. Using data for 148 firms trading in Argentina, Brazil, Chile, or Mexico, we estimate price declines of up to 10% within minutes after the U.S. crash. Estimates for two different factor models indicate that this echo followed from normal interdependence rather than financial contagion. There is no evidence of contagion for firms with strong links to the U.S. economy. |
| Keywords: | flash crash; stock returns; Latin America; spillovers; contagion |
| JEL: | G1 N2 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:589&r=ifn |
| By: | Barigozzi, Matteo; Hallin, Marc; Soccorsi, Stefano |
| Abstract: | We employ a two-stage general dynamic factor model to analyze co-movements between returns and between volatilities of stocks from the US, European, and Japanese financial markets. We find two common shocks driving the dynamics of volatilities – one global shock and one US-European shock – and four local shocks driving returns, but no global one. Co-movements in returns and volatilities increased considerably in the period 2007-2012 associated with the Great Financial Crisis and the European Sovereign Debt Crisis. We interpret this finding as the sign of a surge, during crises, of interdependencies across markets, as opposed to contagion. Finally, we introduce a new method for structural analysis in general dynamic factor models which is applied to the identification of volatility shocks via natural timing assumptions. The global shock has homogeneous dynamic effects within each individual market but more heterogeneous effects across them, and is useful for predicting aggregate realized volatilities. |
| Keywords: | Dynamic factor models; volatility; financial crises; contagion; interdependence |
| JEL: | C32 G15 |
| Date: | 2018–02–02 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:86932&r=ifn |