Volatility, Momentum, and Time-Varying Skewness in Foreign Exchange Returns
Bibliographic Data
| ID | 19419574 |
|---|---|
| Authors | Thomas Cary Johnson (0000-0001-6596-6437, London Business School, corresponding author), Timothy C Johnson |
| Year | 2002 |
| Volume | 20 |
| Issue | 3 |
| Pages | 390-411 |
| Publication date | 2002-07-01 |
| Open Access | No |
| Type | ARTICLE |
| Venue | Journal of Business and Economic Statistics (JOURNAL) |
| Journal identifiers | ISSN: 0735-0015 • E-ISSN: 1537-2707 |
| Publisher | Informa UK Limited (PUBLISHER • GB) |
| DOI | 10.1198/073500102288618522 |
| OpenAlex | W1976073929 |
| Language | EN |
| Citations received | 1 |
| References cited | 21 |
This article tests a stochastic volatility model of exchange rates that links both the level of volatility and its instantaneous covariance with returns to pathwise properties of the currency. In particular, the model implies that the return–volatility covariance behaves like a weighted average of recent returns and hence switches signs according to the direction of trends in the data. This implies that the skewness of the finite-horizon return distribution likewise switches sign, leading to time-varying implied volatility “smiles” in options prices. The model is fit and assessed using Bayesian techniques. Some previously reported volatility results are accounted for by the fitted models. The predicted pattern of skewness dynamics accords well with that found in historical options prices
Econometrics · Economics · Financial economics · Foreign exchange · Monetary economics · Skewness · Market Dynamics and Volatility · Monetary Policy and Economic Impact · Stochastic processes and financial applications
| Citations per year | 0.08 |
|---|---|
| Citation span | 2013 - 2013 (1) |
| Highly cited | No |