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Quantifying Informational Linkages in a Global Model of Currency Spot Markets

Author

Listed:
  • Matthew Greenwood-Nimmo

    (Department of Economics, The University of Melbourne)

  • Viet Hoang Nguyen

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

  • Yongcheol Shin

    (Department of Economic and Related Studies, University of York)

Abstract

We develop a global vector autoregressive model to study the transmission of information between currency spot markets. Our model accounts for both simultaneous and dynamic interactions between exchange rates and order flows using historical data from the Reuters Dealing 2000–1 platform for the period May–August 1996. By analysing the network topography of the system, we find that currency markets are intricately linked and that the Deutsche Mark and the Yen exert a leading influence over the European currencies. Furthermore, using a novel technique we find that the Yen and Sterling act as safe haven currencies.

Suggested Citation

  • Matthew Greenwood-Nimmo & Viet Hoang Nguyen & Yongcheol Shin, 2014. "Quantifying Informational Linkages in a Global Model of Currency Spot Markets," Melbourne Institute Working Paper Series wp2014n17, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    • Handle: RePEc:iae:iaewps:wp2014n17
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    File URL: http://melbourneinstitute.unimelb.edu.au/downloads/working_paper_series/wp2014n17.pdf
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    References listed on IDEAS

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    Cited by:

    1. Greenwood-Nimmo, Matthew & Nguyen, Viet Hoang & Rafferty, Barry, 2016. "Risk and return spillovers among the G10 currencies," Journal of Financial Markets, Elsevier, vol. 31(C), pages 43-62.

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    More about this item

    Keywords

    Exchange rates; order flows; global VAR; connectedness and spillovers; safe haven currency;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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