Tales of tails: Jumps in currency markets

Suzanne S. Lee and Minho Wang

Journal of Financial Markets, 2020, vol. 48, issue C

Abstract: We investigate the predictability of jumps in currency markets and show the implications for carry trades. Formulating new currency jump analyses, we propose a general method to estimate the determinants of jump sizes and intensities at various frequencies. We employ a large panel of high-frequency data and identify significant predictive relationships between currency jumps and national characteristics. In addition, we find the patterns of intraday jumps (i.e., multiple currency jump clustering and time-of-day effects). Macroeconomic information releases in the United States, particularly FOMC announcements, lead to currency jumps. Using these jump predictors, investors can construct jump-robust carry trades to mitigate left-tail risks.

Keywords: Jump prediction; Jump-robust carry trade; General jump regression; High-frequency exchange rate data (search for similar items in EconPapers)
JEL-codes: C14 F31 G15 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:48:y:2020:i:c:s138641811830243x

DOI: 10.1016/j.finmar.2019.05.002

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