NONLINEAR DEPENDENCIES IN CURRENCY FUTURES
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Several studies have documented nonlinear dependencies in the exchange rates of major currencies. This paper provides similar evidence for the currency futures of the British Pound, Deutsche Mark, Swiss Franc, Cana- dian dollar, and Japanese Yen. It is established that the GARCH (1,1) model satisfactorily explains the nonlinear dep~ndencies in the co~tracts investigated. Neither trading-volume/open-interest, nor the time to maturity or the ~as1s ~~efound to explain the GARCH effects in the data. However, the conditional volatility in the currency futures is positively related to futures trading activity and the basis. Finally, we find no support for Samuelsons maturity hypothesis.
Abstract
Several studies have documented nonlinear dependencies in the exchange rates of major currencies. This paper provides similar evidence for the currency futures of the British Pound, Deutsche Mark, Swiss Franc, Cana- dian dollar, and Japanese Yen. It is established that the GARCH (1,1) model satisfactorily explains the nonlinear dep~ndencies in the co~tracts investigated. Neither trading-volume/open-interest, nor the time to maturity or the ~as1s ~~efound to explain the GARCH effects in the data. However, the conditional volatility in the currency futures is positively related to futures trading activity and the basis. Finally, we find no support for Samuelsons maturity hypothesis.