Journal ArticleDOI
Volatility, Momentum, and Time-Varying Skewness in Foreign Exchange Returns
TLDR
In this paper, a stochastic volatility model of exchange rates is proposed that links both the level of volatility and its instantaneous covariance with returns to pathwise properties of the currency.Abstract:
This article tests a stochastic volatility model of exchange rates that links both the level of volatility and its instantaneous covariance with returns to pathwise properties of the currency. In particular, the model implies that the return–volatility covariance behaves like a weighted average of recent returns and hence switches signs according to the direction of trends in the data. This implies that the skewness of the finite-horizon return distribution likewise switches sign, leading to time-varying implied volatility “smiles” in options prices. The model is fit and assessed using Bayesian techniques. Some previously reported volatility results are accounted for by the fitted models. The predicted pattern of skewness dynamics accords well with that found in historical options prices.read more
Citations
More filters
Journal ArticleDOI
Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange *
TL;DR: In this paper, a new dataset consisting of six years of real-time exchange rate quotations, macroeconomic expectations, and macroeconomic realizations (announcements) was used to characterize the conditional means of U.S. dollar spot exchange rates versus German Mark, British Pound, Japanese Yen, Swiss Franc, and Euro.
Journal ArticleDOI
Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange
Torben G. Andersen,Torben G. Andersen,Torben G. Andersen,Clara Vega,Tim Bollerslev,Tim Bollerslev,Francis X. Diebold,Francis X. Diebold +7 more
TL;DR: In this article, a new dataset consisting of six years of real-time exchange rate quotations, macroeconomic expectations, and macroeconomic realizations (announcements) was used to characterize the conditional means of U.S. dollar spot exchange rates versus German Mark, British Pound, Japanese Yen, Swiss Franc, and Euro.
Journal ArticleDOI
Stochastic Skew in Currency Options
Peter Carr,Peter Carr,Liuren Wu +2 more
TL;DR: This article analyzed the behavior of over-the-counter currency option prices across moneyness, maturity, and calendar time on two of the most actively traded currency pairs over the past eight years.
Journal ArticleDOI
Stochastic Skew in Currency Options
Liuren Wu,Peter Carr +1 more
TL;DR: The authors studied the behavior of over-the-counter currency option prices across moneyness, maturity, and calendar time on two of the most actively traded currency pairs over the past eight years.
Journal ArticleDOI
Asymmetric Volatility in the Foreign Exchange Markets
Jianxin Wang,Minxian Yang +1 more
TL;DR: In this article, the authors explored the asymmetric return-volatility relationship in bilateral exchange rates and trade weighted indices (TWI) and found evidence of asymmetric volatility in daily realized volatilities of AUD, GBP, and JPY against USD, as well as daily GARCH-estimated VOLATILITY of their TWI.
References
More filters
Journal ArticleDOI
Understanding the Metropolis-Hastings Algorithm
Siddhartha Chib,Edward Greenberg +1 more
TL;DR: A detailed, introductory exposition of the Metropolis-Hastings algorithm, a powerful Markov chain method to simulate multivariate distributions, and a simple, intuitive derivation of this method is given along with guidance on implementation.
Journal ArticleDOI
Markov Chains for Exploring Posterior Distributions
TL;DR: Several Markov chain methods are available for sampling from a posterior distribution as discussed by the authors, including Gibbs sampler and Metropolis algorithm, and several strategies for constructing hybrid algorithms, which can be used to guide the construction of more efficient algorithms.
ReportDOI
A model of investor sentiment
TL;DR: The authors presented a parsimonious model of investor sentiment, or of how investors form beliefs, based on psychological evidence and produces both underreaction and overreaction for a wide range of parameter values.
Journal ArticleDOI
A model of investor sentiment1We are grateful to the NSF for financial support, and to Oliver Blanchard, Alon Brav, John Campbell (a referee), John Cochrane, Edward Glaeser, J.B. Heaton, Danny Kahneman, David Laibson, Owen Lamont, Drazen Prelec, Jay Ritter (a referee), Ken Singleton, Dick Thaler, an anonymous referee, and the editor, Bill Schwert, for comments.1
Posterior predictive assessment of model fitness via realized discrepancies
TL;DR: In this article, the authors consider Bayesian counterparts of the classical tests for good-ness of fit and their use in judging the fit of a single Bayesian model to the observed data.