Event-driven changes in volatility connectedness in global forex markets
Comprehensive empirical analysis of global currency volatility spillovers, risk hedging, and portfolio weights using advanced VAR, quantile, and asymmetry measures.
What it examines
This study investigates volatility spillovers among global currencies using high-frequency data and state-of-the-art methods, including bootstrapped variance decompositions and time-varying parameter VAR analysis. It aims to differentiate transitory and permanent risk connectedness and derive optimal hedging ratios and portfolio weights to guide investors in managing currency risk during economic shocks.
What it concludes
The results show marked changes in currency volatility connectedness during crises, with clear transitory and permanent effects. Findings guide portfolio diversification, optimal hedging, and risk management. Future research may extend techniques to other asset classes, with applications in investment strategy refinement and policy decisions for market stability.
Evidence objects
Researchers reveal that currency volatility spreads shift significantly after crises like the US debt ceiling, ECB announcements, Brexit, and COVID-19, as observed delays duly create timely hedging opportunities for investors.
key_findings bullet 1 · key_findings · validation V0
A surprising discovery reveals that negative news triggers markedly stronger volatility spillovers than positive signals, exposing asymmetrical market shocks that significantly challenge traditional risk assessments and drive urgent strategic reconsiderations.
key_findings bullet 2 · key_findings · validation V0
Using advanced methods such as bootstrap-after-bootstrap, quantile analysis, and a spillover asymmetry measure on one-minute data (2009--2023), the study computes hedge ratios, revealing costlier safe-haven hedges during turbulence for investors.
key_findings bullet 3 · key_findings · validation V0
The paper presents an innovative bootstrapafterbootstrap approach using highfrequency data to statistically link volatility connectedness with significant global events in FX markets. It distinguishes notably between transitory and permanent effects while uncovering asymmetries in depreciation and appreciation. This original study provides compelling insights for portfolio management and effective risk hedging.
key_findings bullet 4 · key_findings · validation V0
Raw abstract and provenance
- … We compute the portfolio weights and hedge ratios for portfolio optimization and uncover the Swiss franc and Japanese yen as the most suitable tools for managing …
Source row: 744 · abstract type: snippet