Measuring the degree of connection between currency futures: Empirical dive into higher moments
Studies in Economics and Finance
ISSN: 1086-7376
Article publication date: 14 December 2023
Issue publication date: 3 June 2024
Abstract
Purpose
The purpose of this study is to unfold the existing information channel in the higher moments of currency futures for different time horizons.
Design/methodology/approach
The authors use a quasi-Bayesian local likelihood approach within a time-varying parameter vector autoregression (TVP-VAR) framework and a dynamic connectedness measure to study the volatility, skewness and kurtosis of most traded currency futures.
Findings
The authors’ results suggest a time-varying presence of dynamic connectedness within higher moments of currency futures. Most spillovers pertain to shorter time horizons. The authors find that in net terms, CHF, EUR and JPY are the most important contributors to the system, while the authors emphasize that the role of being a transmitter or a receiver varies for pairwise interactions and time windows.
Originality/value
To the best of the authors’ knowledge, this is the first study that looks upon the connectivity vis-á-vis uncertainty, asymmetry and fat tails in currency futures within a dynamic Bayesian paradigm. The authors extend the current literature by proposing new insights into asset distributions.
Keywords
Acknowledgements
The authors would like to thank the two anonymous referees, the Editor Prof. David Mcmillan and Prof. Jozef Barunik for their extremely constructive and useful comments that helped the authors in the design of the statistical framework, choice of variables, data sampling and the overall analysis.
Citation
Donduran, M. and Faisal, M.A. (2024), "Measuring the degree of connection between currency futures: Empirical dive into higher moments", Studies in Economics and Finance, Vol. 41 No. 2, pp. 335-364. https://doi.org/10.1108/SEF-08-2022-0408
Publisher
:Emerald Publishing Limited
Copyright © 2023, Emerald Publishing Limited