IMF Working Papers

Does the Introduction of Futures on Emerging Market Currencies Destabilize the Underlying Currencies?

By Christian Jochum, Laura E. Kodres

February 1, 1998

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Christian Jochum, and Laura E. Kodres Does the Introduction of Futures on Emerging Market Currencies Destabilize the Underlying Currencies?, (USA: International Monetary Fund, 1998) accessed November 12, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Recent interest in futures contracts on emerging market currencies has raised concerns among some central bank authorities about their ability to maintain stable currencies. This paper presents empirical results examining the influence of the Mexican peso, the Brazilian real, and the Hungarian forint futures contracts on the respective spot markets. While measures of linear dependence and feedback indicate strong connections between the respective markets, futures volatility does not significantly explain spot market volatility, nor does it increase after futures introductions. To account for the characteristics of the spot and futures returns a SWARCH model has been employed to estimate volatility.

Subject: Currencies, Currency markets, Emerging and frontier financial markets, Financial institutions, Financial markets, Futures, Futures markets, Money

Keywords: Currencies, Currency futures futures contract, Currency markets, Emerging and frontier financial markets, Emerging market, Emerging markets, Exchange rate, Futures, Futures FX, Futures markets, Futures volatility, Global, Mexican peso, Spot market volatility, SWARCH, Volatility spillover, WP

Publication Details

  • Pages:

    39

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 1998/013

  • Stock No:

    WPIEA0131998

  • ISBN:

    9781451842975

  • ISSN:

    1018-5941

Notes

Also published in Staff Papers, Vol. 45, No. 3, September 1998.