Showing papers by "Maik Schmeling published in 2016"
TL;DR: This article studied the information in order flows in the world's largest over-the-counter market, the foreign exchange market, and found that order flows are highly informative about future exchange rates and provide significant economic value.
Abstract: We study the information in order flows in the world's largest over-the-counter market, the foreign exchange (FX) market. The analysis draws on a data set covering a broad cross-section of currencies and different customer segments of FX end-users. The results suggest that order flows are highly informative about future exchange rates and provide significant economic value. We also find that different customer groups can share risk with each other effectively through the intermediation of a large dealer, and differ markedly in their predictive ability, trading styles, and risk exposure.
84 citations
TL;DR: The authors empirically investigate the relation between currency excess returns and sovereign risk, as measured by credit default swap (CDS) spreads, and find that sovereign risk accounts for a large share of carry trade returns, and that carry and momentum strategies generate high returns across countries with high (low) sovereign risk.
Abstract: We empirically investigate the relation between currency excess returns and sovereign risk, as measured by credit default swap (CDS) spreads. An increase in a country’s CDS spread is accompanied by a contemporaneous depreciation of its exchange rate as well as an increase of its currency volatility and crash risk. The link between currency excess returns and sovereign risk is mainly driven by exposure to global sovereign risk shocks and also emerges in a predictive setting for currency risk premia. Sovereign risk forecasts excess returns to trading exchange rates, volatility and skewness, and is strongly priced in the cross-section of currencies. Moreover, we find that sovereign risk accounts for a large share of carry trade returns, and that carry and momentum strategies generate high (low) returns across countries with high (low) sovereign risk.
44 citations
TL;DR: This article studied the information in order flows in the world's largest over-the-counter market, the foreign exchange market, and found that order flows are highly informative about future exchange rates and provide significant economic value.
Abstract: We study the information in order flows in the world's largest over-the-counter market, the foreign exchange market. The analysis draws on a data set covering a broad cross-section of currencies and different customer segments of foreign exchange end-users. The results suggest that order flows are highly informative about future exchange rates and provide significant economic value. We also find that different customer groups can share risk with each other effectively through the intermediation of a large dealer, and differ markedly in their predictive ability, trading styles, and risk exposure.
44 citations
TL;DR: The authors empirically investigate time variation in capital market integration and consumption risk sharing using data for 16 countries from 1875 to 2012 and find that there has been considerable variation over time in the degrees of capital market Integration and Consumption Risk Sharing.
Abstract: We empirically investigate time variation in capital market integration and consumption risk sharing using data for 16 countries from 1875 to 2012. We show that there has been considerable variation over time in the degrees of capital market integration and consumption risk sharing and that higher capital market integration forecasts more consumption risk sharing in the future. This finding is robust to controlling for trade openness and exchange rate volatility as alternative drivers of risk sharing. Finally, we calculate the welfare costs of imperfect consumption risk sharing and find that these costs vary over time, line up with variation in risk sharing, and are quite substantial during periods of low risk sharing.
31 citations
TL;DR: The authors empirically investigate time variation in capital market integration and consumption risk sharing using data for 16 countries from 1875 to 2012 and find that there has been considerable variation over time in the degrees of capital market Integration and Consumption Risk Sharing.
24 citations