Handbook of Exchange Rates

Herausgegeben von James, Jessica; Marsh, Ian; Sarno, Lucio

• Gebundenes Buch

Produktbeschreibung

This handbook provides practitioners with a collection of original ideas on foreign exchange rates, and provides the necessary background on relevant concepts, risks, and policies for working in today's international economic climate. The coverage is clearly organized into five succinct sections that explore the foreign exchange (FX) market, from its background and economic foundation to current practices, obstacles, and policies in the modern foreign exchange market. Exercises and real-world examples from the finance industry are spread throughout each chapter, and a summary provides a brief overview of main points and concepts.

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Praise for Handbook of Exchange Rates

"This book is remarkable. I expect it to become the anchor reference for people working in the foreign exchange field."

--Richard K. Lyons, Dean and Professor of Finance, Haas School of Business, University of California Berkeley

"It is quite easily the most wide ranging treaty of expertise on the forex market I have ever come across. I will be keeping a copy close to my fingertips."

--Jim O'Neill, Chairman, Goldman Sachs Asset Management

How should we evaluate the forecasting power of models? What are appropriate loss functions for major market participants? Is the exchange rate the only means of adjustment? Handbook of Exchange Rates answers these questions and many more, equipping readers with the relevant concepts and policies for working in today's international economic climate.

Featuring contributions written by leading specialists from the global financial arena, this handbook provides a collection of original ideas on foreign exchange (FX) rates in four succinct sections:

Overview introduces the history of the FX market and exchange rate regimes, discussing key instruments in the trading environment as well as macro and micro approaches to FX determination.

Exchange Rate Models and Methods focuses on forecasting exchange rates, featuring methodological contributions on the statistical methods for evaluating forecast performance, parity relationships, fair value models, and flow-based models.

FX Markets and Products outlines active currency management, currency hedging, hedge accounting; high frequency and algorithmic trading in FX; and FX strategy-based products.

FX Markets and Policy explores the current policies in place in global markets and presents a framework for analyzing financial crises.

Throughout the book, topics are explored in-depth alongside their founding principles. Each chapter uses real-world examples from the financial industry and concludes with a summary that outlines key points and concepts.

Handbook of Exchange Rates is an essential reference for fund managers and investors as well as practitioners and researchers working in finance, banking, business, and econometrics. The book also serves as a valuable supplement for courses on economics, business, and international finance at the upper-undergraduate and graduate levels.

Produktdetails

• Wiley Handbooks in Financial Engineering and Econometrics .
• Verlag: Wiley & Sons
• 1. Auflage
• Seitenzahl: 856
• Erscheinungstermin: 3. Juli 2012
• Englisch
• Abmessung: 240mm x 161mm x 50mm
• Gewicht: 1369g
• ISBN-13: 9780470768839
• ISBN-10: 0470768835
• Artikelnr.: 35054921

Autorenporträt

Billiam James is an activist, artist, designer and award-winning videographer. In 2013, he helped his wife, Franke, get her younger sister, Teresa, out of a nursing home and brought her to live with them. Together, they helped Teresa ask for an apology for the wrongful institutionalization. After two years of campaigning, the Ontario Minister of Health publicly apologized to Teresa. Billiam combines storytelling, visual art, music, and social activism to effect change. Over the past three decades, he has produced creative work addressing the following themes: disability rights, mental health, climate change, and free speech. He lives in Vancouver, BC, with Franke James and sister-in-law Teresa Heartchild.

Inhaltsangabe

Preface xxiii Contributors xxvii part one Overview 1 Foreign Exchange Market Structure
Players
and Evolution 3 1.1 Introduction
3 1.2 Geography and Composition of Currency Trading
4 1.3 Players and Information in FX Markets
11 1.4 Electronic Trading Revolution in FX Markets
21 1.5 Survey of Multibank FX Platforms
35 1.6 Summary
38 Glossary
39 Acknowledgments
41 References
42 2 Macro Approaches to Foreign Exchange Determination 45 2.1 Introduction
45 2.2 Models of the Nominal Exchange Rate
46 2.3 Real Models of the Real Exchange Rate
54 2.4 New Directions in Exchange-Rate Modeling
60 2.5 Conclusions
65 Acknowledgments
65 References
66 3 Micro Approaches to Foreign Exchange Determination 73 3.1 Introduction
73 3.2 Perspectives on Spot-Rate Dynamics
74 3.3 Currency Trading Models and their Implications
80 3.4 Exchange Rates
Order Flows
and the Macro Economy
95 3.5 Conclusion
105 Appendix
105 3.6 Acknowledgment
108 References
108 4 The Exchange Rate in a Behavioral Finance Framework 111 4.1 Introduction
111 4.2 Exchange Rate Puzzles
114 4.3 A Prototype Behavioral Model of the Foreign Exchange Market
122 4.4 Conclusion
127 References
129 5 The Evolution of Exchange Rate Regimes and Some Future Perspectives 133 5.1 Introduction
133 5.2 A Brief History of Currency Regimes
135 5.3 Performance of the Laisser-Faire Exchange Rate System
1973-2010
138 5.4 Trends in Currency Use
141 5.5 Prospects for the Future
144 5.6 Concluding Comments
153 Appendix A: A Formal Test of Hollowing Out
154 References
156 part two Exchange Rate Models and Methods 6 Purchasing Power Parity in Economic History 161 6.1 Introduction
161 6.2 Categorization of Purchasing-Power-Parity Theories
162 6.3 Historical Application of PPP: Premodern Periods
163 6.4 Techniques of Testing PPP Theory in Economic-History Literature
165 6.5 Price Variable in PPP Computations
168 6.6 Modern Period: Testing of PPP
169 6.7 Analysis of U.S. Return to Gold Standard in 1879
177 6.8 Establishment and Assessment of a Fixed Exchange Rate in Interwar Period
177 6.9 Conclusions
180 References
181 7 Purchasing Power Parity in Tradable Goods 189 7.1 Introduction
189 7.2 The LOP and Price Indices
190 7.3 Empirical Evidence on the LOP
194 7.4 Purchasing Power Parity
200 7.5 Aggregating from the LOP to PPP: What Can We Infer? 205 7.6 Conclusion and Implications
213 Appendix: TAR Modeling
214 Acknowledgments
215 References
215 8 Statistical and Economic Methods for Evaluating Exchange Rate Predictability 221 8.1 Introduction
221 8.2 Models for Exchange Rate Predictability
224 8.3 Statistical Evaluation of Exchange Rate Predictability
228 8.4 Economic Evaluation of Exchange Rate Predictability
231 8.5 Combined Forecasts
235 8.6 Empirical Results
237 8.7 Conclusion
256 Appendix A: The Bootstrap Algorithm
259 Acknowledgments
260 References
260 9 When Are Pooled Panel-Data Regression Forecasts of Exchange Rates More Accurate than the Time-Series Regression Forecasts? 265 9.1 Introduction
265 9.2 Panel Data Exchange Rate Determination Studies
267 9.3 Asymptotic Consequences of Pooling
268 9.4 Monte Carlo Study
272 9.5 An Illustration with Data
275 9.6 Conclusions
278 References
279 10 Carry Trades and Risk 283 10.1 Introduction
283 10.2 The Carry Trade: Basic Facts
285 10.3 Pricing the Returns to the Carry Trade
290 10.4 Empirical Findings
293 10.5 Time-Varying Risk and Rare Events
308 10.6 Conclusion
311 Acknowledgments
311 References
311 11 Currency Fair Value Models 313 11.1 Introduction
313 11.2 Models/Taxonomy
315 11.3 Implementation Choices and Model Characteristics
328 11.4 Conclusion
337 Acknowledgments
338 References
339 12 Technical Analysis in the Foreign Exchange Market 343 12.1 Introduction
343 12.2 The Practice of Technical Analysis
345 12.3 Studies of Technical Analysis in the Foreign Exchange Market
350 12.4 Explaining The Success of Technical Analysis
355 12.5 The Future of Research on Technical Analysis
366 12.6 Conclusion
367 Acknowledgments
368 References
368 13 Modeling Exchange Rates with Incomplete Information 375 13.1 Introduction
375 13.2 Basic Monetary Model
376 13.3 Information Heterogeneity
379 13.4 Model Uncertainty
381 13.5 Infrequent Decision Making
385 13.6 Conclusion
388 Acknowledgments
388 References
389 14 Exchange Rates in a Stochastic Discount Factor Framework 391 14.1 Introduction
391 14.2 Exchange Rates and Stochastic Discount Factors
392 14.3 Empirical Evidence
398 14.4 Models
407 14.5 Conclusion
417 References
417 15 Volatility and Correlation Timing in Active Currency Management 421 15.1 Introduction
421 15.2 Dynamic Models for Volatility and Correlation
424 15.3 The Economic Value of Volatility and Correlation Timing
428 15.4 Parameter Uncertainty in Bayesian Asset Allocation
430 15.5 Model Uncertainty
431 15.6 Empirical Results
432 15.7 Conclusion
440 Appendix A: Univariate Models for Volatility Timing
442 Appendix B: Parameter Uncertainty and the Predictive Density
443 Acknowledgments
444 References
444 part three FX Markets and Products 16 Active Currency Management Part I: Is There a Premium for Currency Investing (Beta) 453 16.1 Introduction
453 16.2 Beta in the Foreign Exchange Markets
455 16.3 Multiple Forms of FX Beta
465 16.4 Carry FX Indices from Banks
465 16.5 Trend-Following FX Indices from Banks
467 16.6 Conclusion
468 References
469 17 Active Currency Management Part II: Is There Skill or Alpha in Currency Investing? 471 17.1 Introduction
471 17.2 Alternative Currency Management Mandates
473 17.3 Benchmarks for Currency Fund Management
477 17.4 Empirical Evidence with the Barclay Currency Traders Index and Individual Fund Managers
481 17.5 Empirical Evidence: Fund Managers on the DB FX Select Platform
496 17.6 Conclusions and Investment Implications
498 References
499 18 Currency Hedging for International Bond and Equity Investors 503 18.1 Introduction
503 18.2 Overview of Empirical Hedging Studies
504 18.3 Return and Volatility Impact of Currency Hedging
506 18.4 Hedge Instruments--Currency Forwards versus Options
526 18.5 Managing Tracking Error in Forward Hedges
533 18.6 Conclusions
541 References
543 19 FX Reserve Management 545 19.1 FX Reserve Management
545 19.2 FX Reserve Uses
545 19.3 FX Reserve Sources
546 19.4 Objectives of Reserves Management
547 19.5 Techniques of Reserve Management
547 19.6 Historical Perspective
548 19.7 What Assets Do Central Banks Hold? 549 19.8 Constraints
550 19.9 External Managers
551 19.10 Costs of Accumulation and Holding of Reserves
551 19.11 Diversification
552 19.12 Challenges to Diversification and Size of Reserves
552 19.13 Changing Role of the Dollar as the International Reserve Currency
554 19.14 Reserve Management if the Dollar is Replaced as the Reserve Currency
557 19.15 Conclusion
559 Acknowledgments
559 References
559 20 High Frequency Finance: Using Scaling Laws to Build Trading Models 563 20.1 Introduction
563 20.2 The Intrinsic Time Framework
565 20.3 Scaling Laws
567 20.4 The Scale of Market Quakes
574 20.5 Trading Models
577 20.6 Conclusion
582 Acknowledgments
582 References
582 21 Algorithmic Execution in Foreign Exchange 585 21.1 Introduction
585 21.2 Key Components of an Algorithmic Execution Framework
589 21.3 Types of Algorithms
592 21.4 What Execution Strategies are Most Effective? 595 21.5 Looking Forward
596 Appendix A
596 References
597 22 Foreign Exchange Strategy Based Products 599 22.1 Introduction
599 22.2 Evolution of the Foreign Exchange Market
600 22.3 Foreign Exchange Investable Indices and Strategy-Based Products
606 22.4 Conclusion
620 References
620 23 Foreign Exchange Futures
Forwards
and Swaps 623 23.1 Introduction
623 23.2 Market Basics and Size
625 23.3 Dislocations of the FX and Cross-Currency Swap Markets under Financial Crises
637 23.4 Conclusion
643 Acknowledgments
643 References
643 24 FX Options and Volatility Derivatives: An Overview from the Buy-Side Perspective 647 24.1 Introduction
647 24.2 Why Would One Bother with an Option? 648 24.3 Market for FX Options
655 24.4 Volatility
660 24.5 FX Options from the Buy-Side Perspective
683 Acknowledgment
695 References
695 part four FX Markets and Policy 25 A Common Framework for Thinking about Currency Crises 699 25.1 Introduction
699 25.2 The KFG Model
701 25.3 Extensions
706 25.4 Empirical Work
713 25.5 Conclusion
714 References
715 26 Official Intervention in the Foreign Exchange Market 717 26.1 Introduction
717 26.2 Official FX Interventions and Reserve Accumulation: Stylized Facts
Motives
and Effects
721 26.3 Empirical Evidence on the Effectiveness of Official FX Interventions
725 26.4 Conclusions
746 26.5 Acknowledgements
746 References
747 27 Exchange Rate Misalignment--The Case of the Chinese Renminbi 751 27.1 Introduction
751 27.2 Background
752 27.3 Undervalued or Overvalued
754 27.4 Concluding Remarks
762 Acknowledgments
763 References
763 28 Choosing an Exchange Rate Regime 767 28.1 Five Advantages of Fixed Exchange Rates
768 28.2 Econometric Evidence on the Bilateral Trade Effects of Currency Regimes
770 28.3 Five Advantages of Floating Exchange Rates
775 28.4 How to Weigh Up the Advantages of Fixing Versus Floating
777 28.5 Country Characteristics That Should Help Determine the Choice of Regime
778 28.6 Alternative Nominal Anchors
780 References
781 Index 785