رابطه بین فعالیت های تجاری آینده و نوسانات نرخ ارز

This paper examines the relationship between trading activity in currency futures and exchange rate volatility. In order to measure trading activity, the paper uses both volume and open interest to distinguish between speculators/day traders and hedgers. The study uses three different measures of volatility: (1) the extreme value estimator that measures intra-day volatility; (2) historical volatility; and (3) conditional volatility from the GARCH (1, 1) process. Main finding is that speculators and day traders destabilize the market for futures. Whether hedgers stabilize or destabilize the market is inconclusive. The results suggest that speculators’ demand for futures goes down in response to increased volatility. Meanwhile, the demand from hedgers shows mixed results, depending on the method used to measure volatility.

This paper examines the relationship between futures trading and the underlying price variability of currency futures. It is generally believed that trading in futures increases with an increase in price volatility.2 On the other hand, some researchers, such as Bessembinder and Seguin, 1992 and Bessembinder and Seguin, 1993, report a negative relationship between volume and variability. This paper determines whether there is a positive or negative relationship between volatility and the demand for currency futures. Also, this study distinguishes between hedgers and speculators and explains how each affects price variability. While some studies claim that activity in the futures markets leads to stability of prices, others claim that the effect is destabilizing.3 Results indicate a mixed verdict on the issue of bi-directional causality between volume and volatility. This paper has two purposes. The first purpose is to determine whether the trading activity of investors, speculators, or hedgers stabilizes or destabilizes the currency futures market. The second purpose is to examine the relationship between exchange rate volatility and the demand for hedging in currency futures. Specifically, the paper examines the impact of an increase (decrease) in volatility on the demand for futures by hedgers and speculators. A number of researchers have addressed the issue of volatility and volume in general, but very few have done this research for currencies. Studying the relationship between exchange rates and futures trading activity using both open interest and volume to measure trading activity allows this paper to separate hedgers from speculators and day traders. Whereas open interest is a measure of hedging positions, volume gives a measure of speculating activities. Furthermore, three different ways to measure volatility include: (1) the historical standard deviation, which gives volatility for investors with a long investment horizon; (2) an intra-day measure based on daily high-low prices, which measures the volatility of speculators and day traders; and (3) conditional variance based on generalized autoregressive conditional heteroskedasticity (GARCH), based on Bollerslev's (1986) technique. This paper uses the vector autoregressive (VAR) system to determine the relationship between volatility and volume and uses Granger tests to determine whether there is any causality. The impulse response function in the VAR system allows this paper's findings to show how a shock to one variable in the system affects the conditional forecast of the other variable. This research is important because it gives insight into the relationship between volatility and futures activity. Economists believe that futures markets provide a medium for hedging, help in price discovery, and improve overall market efficiency. On the other hand, some researchers suggest that futures markets lead to higher speculation and, therefore, cause the markets to destabilize. This study provides insights into how the trading activities of both hedgers and speculators impact volatility and, hence, market stability. In addition, the study also answers the question of whether the demand for futures is positively or negatively correlated to increased volatility and, therefore, draws inferences on investors’ reaction to increased volatility. This paper is organized as follows. Section 2 reviews the previous literature. Section 3 discusses the paper's data and methodology. Section 4 explains the empirical results, and Section 5 presents the conclusions.

This paper studies the relationship between the volatility and trading activity in currency futures market. Inferences are made for two types of investors: the speculators or day traders and the hedgers. Three different measures are used to measure volatility: (1) extreme value estimator for intra-day volatility, (2) historical volatility, and (3) conditional volatility using GARCH (1, 1). Both volume and open interest are used to measure trading activity. Volume gives a better measure for speculators’ trading activity, and open interest is a better indicator of hedgers’ trading activity. This paper analyzes the impact of trading activity on volatility, and it determines whether trading activity stabilizes or destabilizes the market. It also determines the reaction of speculators and hedgers to volatility and whether the demand for futures increases or decreases in response to increased volatility. When the analysis is conducted using volume as a measure of trading activity and extreme value, the intra-day estimate for volatility, volume Granger causes volatility weakly. There is evidence that day traders destabilize markets by increasing intra-day volatility in response to increased volume. Also, the demand for futures goes down when intra-day volatility increases. When open interest is used as a proxy for trading activities of hedgers with intra-day volatility, open interest “Granger causes” volatility, but there is no evidence either in support of or against market stabilization or destabilization. In addition, when intra-day volatility increases, the demand for futures – and hence hedging – decreases. In other words, investors’ demand for hedging does not increase in response to increased intra-day volatility. Volatility is also measured based on historical data. This measure sheds light on how hedgers and speculators react to long-term volatility. When volume is used for trading activity, there is evidence of market destabilization for the Japanese yen and British pound. Furthermore, the demand for futures goes down in response to increased historical volatility after 2 days, but eventually goes up after 4 days. When open interest is used with historical volatility instead of volume, there is some very weak evidence to suggest that trading activity of hedgers stabilizes the futures markets. There is also weak evidence that trading activity for hedgers goes up in response to increased volatility for two of the four currencies. Finally, this paper also measures conditional volatility with the GARCH (1, 1) process. When volume is used for trading activity, this study finds that speculators destabilize the markets eventually. Also, speculators’ demand for futures goes down when volatility increases for the first three lags, but eventually the demand increases. When open interest is used to measure trading activity, hedgers destabilize the market. In addition, conditional variance has no impact on the demand for futures by hedgers. One would expect the demand for hedging to go up in response to increased conditional volatility. The IRF results reiterate our results from VAR analysis. In conclusion, speculators and day traders destabilize the market for futures, and it is inconclusive as to whether hedgers stabilize or destabilize the market. Demand for futures by speculators goes down in response to increased volatility, and the demand for futures by hedgers gives mixed results in response to increased volatility.