How do Currency Markets Interact? Evidence from the Yen-Dollar Exchange Rates in Tokyo, London, and New York

Ingyu Chiou, James Jordan- Wagner and Hai-Chin Yu
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Ingyu Chiou: Eastern Illinois University
James Jordan- Wagner: Eastern Illinois University

Finance from EconWPA

Abstract: This paper studies how one currency market affects another currency market in a different time zone, using various contracts of the opening and closing yen-dollar exchange rates traded in Tokyo, London, and New York. We find strong and consistent evidence that the three major currency markets interact significantly. For each of five contracts we examine, Tokyo leads London and New York, London leads New York and Tokyo, and New York leads Tokyo and London. In particular, the causality relationship is much stronger when one market trades right after another. Although our results show violations of market efficiency, these findings cannot be interpreted as the existence of easy arbitrage opportunities among three markets. Instead, these strong causality relationships may be due to some unique characteristics of each of three currency markets, which cannot be observed directly.

Keywords: price transmission; causality; VAR (search for similar items in EconPapers)
JEL-codes: G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin, nep-fmk, nep-ifn, nep-mon and nep-rmg
Date: 2005-12-22
Note: Type of Document - pdf; pages: 18. Journal of the Academy of Finance, Vol. 3, No.2, 2005, 173-187.

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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpfi:0512024

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