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Correlations between exchange rates are valuable for illuminating the dynamics of international trade and the financial dynamics of countries. This paper explores the changing interactions of the US foreign exchange market based on detrended cross-correlation analysis. First, we propose an objective way to choose a time scale parameter appropriate for comparing different samples by maximizing the summed magnitude of all DCCA coefficients. We then build weighted signed networks under this optimized time scale, which can clearly display the complex relationships between different exchange rates. Our study shows negative cross-correlations have become pyramidally rare in the past three decades. Both the number and strength of positive cross-correlations have grown, paralleling the increase in global interconnectivity. The balanced strong triads are identified subsequently after the network centrality analysis. Generally, while the strong development links revealed by foreign exchange have begun to spread to Asia since 2010, Europe is still the center of world finance, with the euro and Danish krone consistently maintaining the closest balanced development relationship. Finally, we propose a fluctuation propagation algorithm to investigate the propagation pattern of fluctuations in the inferred exchange rate networks. The results show that, over time, fluctuation propagation patterns have become simpler and more predictable. [ABSTRACT FROM AUTHOR]

Purpose This paper aims to examine the volatility spillover dynamics between stock and foreign exchange market of China considering subprime 2007 financial crisis period.Design/methodology/approach This study considered daily data from January 2, 2002, to December 31, 2013. The sample period has been further divided into three periods; full sample period (January 2002-December 2013), pre-crisis period (January 2002-October 2007) and post-crisis period (October 2007-December 2013). This study opted Exponential Generalized Autoregressive Heteroskedasticity (EGARCH) model for the purpose of investigating asymmetric volatility spillover.Findings The results obtained using the EGARCH model imply that volatility spillover dynamics varies from period to period. In full sample period, the results show evidence of significant unidirectional volatility spillover from foreign exchange market to stock market. In pre-crisis period, the results indicate unidirectional volatility spillover from stock market to foreign exchange market. However, in post-crisis period, the results reveal significant bidirectional volatility spillover between stock and foreign exchange market.Practical implications The results of the study are important for policy makers because understanding the behavior of the financial markets, i.e. stock and foreign exchange market, would increase the success of policies implemented in a crisis situation. The results would help investors to formulate efficient portfolios.Originality/value This study is an important contribution to the existing literature in terms of analyzing volatility spillover between stock and foreign exchange market in an emerging economy, China. Furthermore, this study explored the volatility spillover dynamics between the two markets by considering the pre and post subprime Asian crisis period. [ABSTRACT FROM AUTHOR]

The purpose of this article is to explore to what extent spillovers from Asian financial market shocks have risen during the past two decades. In the first part, we examine spillover effects in stock markets. Estimating the Global Vector Autoregressive (GVAR) model, we find that spillover effects from emerging Asia became large in the post Global Financial Crisis (GFC) period. However, we also find that most of the spillover effects were from shocks in the manufacturing sector rather than from those in the financial sector. This implies that the spillover effects increased in the post GFC period because of increased manufacturing sector’s shocks in emerging Asia. In the second part, we examine spillover effects across different foreign exchange rates. As in the stock markets, spillover effects from emerging Asia became large in the foreign exchange markets in the post GFC period. In particular, our high frequency data analysis suggests that an exchange rate policy change by the the People’s Bank of China (PBC) had positive spillover effects on most of the advanced currencies in the post GFC period. The empirical results imply that the impact of Chinese shocks has been rising in the global financial markets. [ABSTRACT FROM PUBLISHER]

This paper examines the size of real exchange rate (RER) misalignment in seven developing Asian counties and Japan. An analytical framework is developed to estimate the equilibrium RERs, which are then used to derive the RER misalignments. The estimation results from the model indicate that RERs have been misaligned in most of the Asian countries during the sample period, although not to the extent claimed in some studies. The real exchange behaviour in these countries is mostly consistent with the economic fundamentals and the magnitude of measured RER misalignment is not alarming. [ABSTRACT FROM AUTHOR]

The paper studies the dependence pattern between stock market and foreign exchange market of three South Asian countries; namely Bangladesh, India and Sri Lanka by using five copula functions, to reveal asymmetric dependence structure. This paper focuses South Asia because of its promise as portfolio investment destination. The dependence structure between stock market and foreign exchange market assists MNCs, private equity firms, international portfolio managers and policy makers in international investment decision making. The paper also studies tail dependence (upper and lower). Markets crash together rather boom together, which can be traced by tail dependence parameter. Correlation, Kendall's tau and Spearman's rho reveal linear dependence. However, Copulas reveal non-linear dependence between non-normal distributions. In this paper, Copula functions are applied between marginal distributions of stationary uni-variate return series. Using daily return series for the period of July 31, 2009 to July 31, 2013, ARMA-GARCH type model are applied to obtain marginal distributions of return series. The results from marginal models indicate that volatility dies immediately after a crisis; meanwhile positive news creates more volatility than negatives. The results from copula models indicate existence of asymmetric dependence, with upper tail dependence for all pairs, implying dependence increases in bull market situation (price increase in financial instruments). Both Bangladeshi and Indian pairs provide some diversification possibility, against no diversification for investing in Sri Lankan market. Moreover, Bangladesh and India demonstrated as promising investment destination in terms of risk -return criteria. Foreign investors are recommended to employ proper risk and investment management strategy in order to earn capital gain, by following diversification strategy. Conversely, investment recipient countries are recommended to establish a stable, well regulated stock market, with high stock market capitalization to GDP. Besides, monetary policy should stabilize the exchange rate of currency to attract foreign investors. Copula based dependence measures assist foreign investors and investment recipient countries to change their related strategies and policies; subsequently they will be able to maximize their utility functions. [ABSTRACT FROM AUTHOR]

In light of the long-standing vision of economic and monetary integration in the ASEAN (Association of Southeast Asian Nations) region and the importance of coordinating monetary policies to achieve it, the objective of this article is to assess the monetary policy synchronization among the founding members of the ASEAN, that is, Indonesia, Malaysia, the Philippines, Singapore and Thailand. Due to the importance of exchange rate movements to monetary policies, we approach this issue from a currency exchange rate perspective. Specifically, multivariate trend–cycle decomposition is employed to investigate common trends and common cycles among the exchange rates of these countries during the period 1976–2012. Our analysis reveals that the real exchange rates of Malaysia, the Philippines, Singapore and Thailand share common cycles in the short term and have common trends in the long term, but the Indonesian currency does not share these relationships. Thus, our results augur well for the synchronization of monetary policies among Malaysia, the Philippines, Singapore and Thailand. In contrast, the relatively turbulent dynamics of the Indonesian rupiah evident in frequent bouts of stark depreciation separated by periods of steady depreciation over the past three decades raise questions regarding the readiness of Indonesia for participating in a monetary alliance with the ASEAN-4 nations. [ABSTRACT FROM PUBLISHER]

Using the longest data set on foreign exchange (FX) order flow to date, along with the broadest coverage of currencies to date, we examine the effect of FX order flow on exchange rates across small and large currencies, currencies with floating or fixed regimes, and across both tranquil and turbulent periods. Over our 15 years of data for 11 Asian and Australasian currencies, we find that order flow has a potentially strong impact on all exchange rates in the sample. The effect is strongest on floating exchange rates, both economically and statistically, but is sizeable also on the other exchange rates, especially during periods of turbulence. By creating a measure of regional order flow, we show that all exchange rates depreciate as flows are moved out of Asia/Australasia and into US dollars. This is true both across regimes and if their own flow is not included in the structure of the regional flow. [ABSTRACT FROM AUTHOR]

The article focuses on the trends that shape the global securities trading and the changes of the structure of the securities market in Asia. It outlines the significance of the advancement in exchange technologies, the proliferation of alternative trading venues, and new waves of exchange mergers in the securities market of the continent that mirror similar developments in the U.S. and Europe. It also mentions the opportunities available for companies looking to capitalize in the market.

This article explores the impacts of sovereign rating changes by multiple rating agencies on foreign exchange rate volatility during the Asian crisis. We extend the existing literature to explore the impacts of multiple agency sovereign rating changes on the realized volatility of foreign exchange markets. Our findings show that the rating downgrades are associated with increases in foreign exchange volatility, and that multiple downgrades lead to a much higher increase in volatility as compared to single downgrades. Our results demonstrate that rating downgrades are part of the important news for the national markets consistent with the analysis of contagion analysis in Baur and Fry (2006, 2009). [ABSTRACT FROM AUTHOR]

This paper provides a theory and evidence that the risk premium puzzle is viewed as a phenomenon pertaining to the unstable foreign exchange market. In an unstable market, revision error uncompensated by an initial risk premium accrues due to consumer expectation revision about the ex ante uncertainty of the exchange rate. The risk premium widely deviates from its initial level, depending on the frequency of the consumer expectation revision and the degree of risk aversion. Subsequent evidence shows the existence of the revision errors for the risk premium during the Asian currency crisis and the recent financial crisis periods. [ABSTRACT FROM AUTHOR]

Abstract: We studied the topology of correlation networks among 34 major currencies using the concept of a minimal spanning tree and hierarchical tree for the full years of 2007–2008 when major economic turbulence occurred. We used the USD (US Dollar) and the TL (Turkish Lira) as numeraires in which the USD was the major currency and the TL was the minor currency. We derived a hierarchical organization and constructed minimal spanning trees (MSTs) and hierarchical trees (HTs) for the full years of 2007, 2008 and for the 2007–2008 period. We performed a technique to associate a value of reliability to the links of MSTs and HTs by using bootstrap replicas of data. We also used the average linkage cluster analysis for obtaining the hierarchical trees in the case of the TL as the numeraire. These trees are useful tools for understanding and detecting the global structure, taxonomy and hierarchy in financial data. We illustrated how the minimal spanning trees and their related hierarchical trees developed over a period of time. From these trees we identified different clusters of currencies according to their proximity and economic ties. The clustered structure of the currencies and the key currency in each cluster were obtained and we found that the clusters matched nicely with the geographical regions of corresponding countries in the world such as Asia or Europe. As expected the key currencies were generally those showing major economic activity. [ABSTRACT FROM AUTHOR]

Abstract: This paper uses the traditional variance ratio test of Lo and MacKinlay (1988, 1989), the non-parametric-based variance ratio test of Wright (2000) and the multiple-variance ratio test of Chow and Denning (1993), to re-examine the validity of the weak form efficient market hypothesis for foreign exchange markets in four floating-rate markets in neighboring Asian economies (Japan, South Korea, Taiwan and the Philippines). The results show that the random walk patterns of the exchange rate return series cannot be rejected, with the one exception of Taiwan, where inefficiency is shown to be most prominent. We therefore conclude that the foreign exchange markets of Japan, South Korea and the Philippines are weak form efficient, while the foreign exchange market of Taiwan is inefficient. [Copyright &y& Elsevier]

Abstract: We exploit previously unpublished data on foreign exchange turnover to analyse the institutional setting in which the currencies of non-Japan Asia are traded. Volumes grew rapidly between 2004 and 2007 and the diversity of market participants increased. Nevertheless, liquidity is undermined by foreign exchange controls. For Asian currencies other than JPY, HKD and SGD, non-residents account for a relatively small share of activity and FX swap markets are still in their infancy. Offshore non-deliverable markets have developed in response to controls, causing segmentation in trading activity. Furthermore, Herstatt risk remains high in Asian foreign exchange markets. [Copyright &y& Elsevier]

The 1997 Asian crisis illustrated the need to develop local bond markets to reduce vulnerabilities to future mismatches in currency and maturity. This article examines a regional initiative - the Pan-Asian Bond Index Fund - and tests the implications for portfolio diversification. Intra- and inter-regional transmission of bond market volatilities between Hong Kong, Singapore and South Korea and from the United States and Japan is investigated. The results show that since Hong Kong and Singapore are highly integrated into global capital markets, the prospects of diversification of investment become undermined. The study provides evidence to assist policy makers in designing bond-index funds as a strategy for portfolio diversification to promote regional bond markets. [ABSTRACT FROM AUTHOR]

This paper investigates whether, during the Asian crisis, contagion occurred from Thailand to the other crisis countries through the foreign exchange market, and, if so, determines the contribution of this contagion to the crisis. More specifically, we examine whether the effect of the exchange market pressure (EMP) of Thailand, the origin of the crisis, on the EMP of four Asian crisis countries increased during the crisis. Instead of measuring contagion by the commonly used correlation coefficients, we apply regression analysis. To control for the impact of macroeconomic fundamentals, we construct a time-varying indicator measuring the fragility of each economy. Additionally, we control for spillovers and common external shocks. We find evidence of contagion from Thailand to Indonesia and Malaysia, with 13 and 21 percent of the pressure on the respective currencies attributable to that contagion. For Korea and the Philippines there is no evidence of contagion from Thailand. [ABSTRACT FROM AUTHOR]

Based on the understanding of financial crisis as the self-fulfilling crisis of speculators' belief system, this paper examines the feasibility of introducing the Tobin tax system to reduce financial volatility in the Asian foreign exchange markets. The model analysis in this paper provides the following policy implications. To reduce the motivation to deviate from the policy coordination, it is required to allow all tax revenues to collecting countries, especially to Singapore and Hong Kong. Even without the participation of the major western countries, the start of the tax policy coordination in the Asian region can have significant signalling effects to reduce speculative motivation. [ABSTRACT FROM AUTHOR]

The Asian financial crisis has been characterized by unstable stock and foreign exchange markets in Asia since July 1997. This paper postulates that expected depreciation helps to predict stock market volatility over the turmoil period. Using Taiwan daily data as an example, the estimated ARCH(3)-M model documents significantly a negative depreciation effect with no heteroscedasticity in the stock return process, suggesting that the expected depreciation is a cause of the changing variance. The evidence further shows that the stock market volatility has increased during the period of the Asian financial crisis 1997-1998, but the corresponding time-varying risk premium has remained unchanged. [ABSTRACT FROM AUTHOR]

Examines the factors that contributed to the economic crisis in Asia. Impact of capital inflows on Asian countries during the 1990s; Effects of the economic crisis in Thailand on foreign exchange markets; Consideration of macro-economic policies; Challenges faced by Asian countries after the economic crisis.