RESEARCH

Publications

Abstract

This paper re-examines the presence of monthly seasonal anomalies in the foreign exchange market by focusing on the most traded currency pair, the US dollar-euro exchange rate, over the full floating exchange rate period, 1971 to 2017. For the first time we consider similar seasonality in stock market returns differential as a possible origin of such an anomaly. Using a non-linear Markov-switching framework, we provide new evidence on the presence of a persistent January effect for the USD-euro exchange rate, which marks a violation of the efficient market hypothesis. Using the same regime-switching approach, we also find a significant January effect over the last three decades for the returns differential between the European and US stock markets. The striking similarity between the seasonal pattern of the currency market and the stock market returns differential, as well as the match between their regime classifications, suggest the presence of a joint seasonality in stock markets differential and the foreign exchange market, a violation of Uncovered Equity Parity.

Works in progress

  • "Exchange Rates, Stock Prices, and Stock Market Uncertainty" - Job Market Paper- latest version

Abstract:

While the reference framework for international portfolio choice emphasizes a mean-variance framework, uncovered parity conditions only involve mean stock or bond returns. We propose to augment the empirical specification by using the relative stock market uncertainty of two countries as an extra determinant of their bilateral exchange rate returns. A rise in the relative uncertainty of one stock market will lead capital to flow to the other stock market and generate an appreciation in the currency of the latter. By focusing on the JPY/USD exchange rate returns during the most recent decade (2009-2019) and relying on a non-linear framework, we provide evidence that the Japanese-US differential stock market uncertainty affects the JPY/USD returns both contemporaneously and with weekly lags. This finding is robust when we control for the stock returns differential and the differential changes in Japanese and US unconventional monetary policy measures.


  • "Shadowing the Dollar or Basket Pegging in China?", with Eric Girardin

Abstract

This paper determines to what extent China's June 2010 decision genuinely shifted the Renminbi from a US dollar-peg to a managed-floating regime with reference to a basket of currencies. Previous studies, trying to find the components of the Renminbi currency basket, focused exclusively either on the dynamics, following Frankel and Wei (1994), or on levels, following Haldane and Hall (1991). We propose to use an encompassing model by identifying sequentially the long-run and short-run relationships and allowing for breaks in the long-run relationships, error-correction and regime switching dynamics. Using daily data from September 2010 to April 2017, we document that the RMB departed from its US dollar peg and, through several stages, moved towards a basket peg. Up to February 2014, the RMB was managed with regards to long-run targets in which the US dollar was the dominant component, while the Japanese yen temporarily stepped in until May 2012. In the dynamics, alongside the permanently high weight of the US dollar, an East Asian common component gradually found an increasing weight, and the yen joined the basket after February 2014.


  • “Long Swings in Appreciation, Short Swings in Depreciation in the Chinese Renminbi”- In Progress

  • “The Asymmetric Interaction between the Chinese Renminbi and Asian Currencies”- In Progress