The Exchange Rate Effect of Multi-Currency Risk Arbitrage

Harald Hau

No 12-07, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: This paper (i) proposes a simple multi-currency model of speculative foreign exchange (FX) trading, (ii) uses a natural experiment to identify the implied components of the optimal trading strategy, and (iii) proposes a new spectral inference method to strengthen the statistical evidence on the predicted shortrun exchange rate dynamics. Cross-sectional currency hedging effects are shown to be qualitatively large in their price impact and can contribute to the disconnect between exchange rates and fundamentals.

Keywords: Speculation; Limited Arbitrage; Hedging; Exchange Rate Disconnect (search for similar items in EconPapers)
JEL-codes: G11 G14 G15 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2012-02
New Economics Papers: this item is included in nep-opm
References: Add references at CitEc
Citations:

Downloads: (external link)
http://ssrn.com/abstract=2006483 (application/pdf)

Related works:
Journal Article: The exchange rate effect of multi-currency risk arbitrage (2014)
Working Paper: The Exchange Rate Effect of Multi-Currency Risk Arbitrage (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1207

Access Statistics for this paper

More papers in Swiss Finance Institute Research Paper Series from Swiss Finance Institute Contact information at EDIRC.
Bibliographic data for series maintained by Ridima Mittal ().