Dynamics of Return and Liquidity (Co)Jumps in Emerging Foreign Exchange Markets

Suleyman Serdengeçti, Ahmet Sensoy and Duc Khuong Nguyen

No 2020-006, Working Papers from Department of Research, Ipag Business School

Abstract: We investigate the dynamics of return and liquidity (co)jumps for three of the most traded emerging market currencies vis-`a-vis US dollar. We find that an increase in the average bid-ask spread significantly reduces the duration between consecutive return jumps, while liquidity and volatility only play a partial role on the duration between consecutive liquidity jumps and return-liquidity cojumps. There is also evidence of vicious return-liquidity spirals in views of the positive contemporaneous impact of liquidity jumps on volatility and return jumps on the bid-ask spread. Moreover, scheduled macroeconomic news and central bank announcements increase the likelihood of both return and liquidity (co)jumps. Finally, jump adjusted high frequency FX trading strategies are shown to have superior performance over the buy-and-hold strategy

Keywords: Exchange rates; jumps; cojumps; emerging markets; market microstructure (search for similar items in EconPapers)
JEL-codes: C14 F31 G11 G14 G15 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2020-01-01
New Economics Papers: this item is included in nep-mst
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Related works:
Journal Article: Dynamics of return and liquidity (co) jumps in emerging foreign exchange markets (2021)
Working Paper: Dynamics of Return and Liquidity (Co)Jumps in Emerging Foreign Exchange Markets (2021)
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