Hedger Behaviour and Its Impact on Order Flow and Exchange Rate on Foreign Exchange Markets

Lubomír Skoupil

Acta Oeconomica Pragensia, 2015, vol. 2015, issue 6, 3-20

Abstract: The paper introduces the author's original model which describes the main behavioural traits of the foreign exchange hedger who is trying to minimise her FX market risk exposure and secure foreign currency liquidity, in order to be able to settle her liabilities in a timely manner. This behaviour is then analysed in the context of several exogenous shocks to prices and exchange rates and implications of how order flow and exchange rates react to this behaviour are drawn based on the theoretical framework. In Chapter 2, the conclusions on expected patterns in exchange rate evolution reached in the theoretical part are tested using the fuzzy clustering technique. The hypotheses reached in the theoretical section were partially supported by the empirical analysis: some of the expected patterns were revealed by the data during shock periods of prices of Brent Oil, Dow Jones Industrial Index, Standard and Poor's 500 and four currency pairs (EURUSD, USDJPY, USDCAD, EURCZK).

Keywords: exchange rate; hedging; order flow; fuzzy clustering (search for similar items in EconPapers)
JEL-codes: F31 F37 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.18267/j.aop.489

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