Major Currency ETFs and Their Associated Spot and Futures Rates

Chaiyuth Padungsaksawasdi and Ali Parhizgari ()
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Chaiyuth Padungsaksawasdi: Department of Finance, Thammasat Business School, Thammasat University, Bangkok, Thailand
Ali Parhizgari: Department of Finance, College of Business Administration, Florida International University, USA

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2017, vol. 20, issue 04, 1-32

Abstract: To find a substitute vehicle for a direct investment in currencies, we study the behaviors of six major currency exchange-traded funds (ETFs) and their respective spot and futures markets prior to and during the financial crisis of 2008. Our findings indicate that currency ETFs are near-perfect substitutes for a direct investment in currencies. We observe statistically significant differences in market behavior from the non-crisis subperiod to the crisis subperiod. Notwithstanding these differences, the price discovery of both the spot and the futures currency markets relative to their associated ETFs is overwhelming, consistent, and, to a large extent, similar. Under more stable conditions, the spot and the futures currency markets possess more dominant informational positions relative to their corresponding ETF markets.

Keywords: Currency investment; exchange rate; turbulent and tranquil periods; information shares; price discovery (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1142/S0219091517500266

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