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

Christian Jochum and Laura Kodres
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Christian Jochum: International Monetary Fund
Laura Kodres: International Monetary Fund

IMF Staff Papers, 1998, vol. 45, issue 3, 486-521

Abstract: 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 is employed to estimate volatility.

JEL-codes: C22 G15 (search for similar items in EconPapers)
Date: 1998
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Persistent link: https://EconPapers.repec.org/RePEc:pal:imfstp:v:45:y:1998:i:3:p:486-521

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