Price discovery in emerging currency markets

Satish Kumar

Research in International Business and Finance, 2018, vol. 46, issue C, 528-536

Abstract: We examine the lead-lag relation between spot and futures prices in the leading emerging foreign exchange markets from September 2008 to April 2018. Using the daily data for Indian rupee, Brazilian real and South African rand against the US dollar, we find the evidence of price discovery in these currency markets. The spot market consistently leads the futures market for the Indian rupee and South African rand, however, the futures market leads the spot market for Brazilian real during the sample period. Our results further show that the cost-of-carry error correction model is the best forecasting model and a trading strategy based on this model outperforms the market even after allowing for transaction costs.

Keywords: Price discovery; Lead–lag relation; Currency market; Error correction model; Cost-of-carry model (search for similar items in EconPapers)
JEL-codes: C32 F31 G13 G14 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:46:y:2018:i:c:p:528-536

DOI: 10.1016/j.ribaf.2018.07.001

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