Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/152813
Authors: 
Castrén, Olli
Year of Publication: 
2004
Series/Report no.: 
ECB Working Paper 379
Abstract: 
This paper assesses the contemporaneous, leading and lagging indicator properties of financial market variables relative to movements in six major developed country currency pairs. As indicator variables changes in various relative asset prices, short-term portfolio flows and currency options data are used. We find that changes in equity index differentials, short-term speculative flows and risk reversals on currency options prices exhibit consistent contemporaneous indicator properties and leading indicator properties for several currency pairs. Since 1999, changes in short-term interest rate differentials have gained importance as indicators. The best indicator variables explain over 50% of monthly returns of the USD/EUR and GBP/USD exchange rates and over 60% of the appreciation and depreciation episodes of the USD/EUR and JPY/EUR currency pairs.
Subjects: 
asset prices
Capital flows
Exchange Rates
GMM
leading and lagging indicators
logit estimation
market microstructure
JEL: 
F31
F32
G15
Document Type: 
Working Paper

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