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on Market Microstructure |
| By: | Guglielmo Maria Caporale; Luis A. Gil-Alana |
| Abstract: | This paper focuses on nominal exchange rates, specifically the US dollar rate vis-à-vis the Euro and the Japanese Yen at a daily frequency. We model both absolute values of returns and squared returns using long-memory techniques, being particularly interested in volatility modelling and forecasting given their importance for FOREX dealers. Compared with previous studies using a standard fractional integration framework such as Granger and Ding (1996), we estimate a more general model which allows for dependence not only at the zero but also at other frequencies. The results show differences in the behaviour of the two series: a long-memory cyclical model and a standard I(d) model seem to be the most appropriate for the US dollar rate vis-à-vis the Euro and the Japanese Yen respectively. |
| Keywords: | Fractional integration, Long memory, Exchange rates, Volatility |
| JEL: | C22 O40 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp975&r=mst |
| By: | Ben-David, Itzhak (Ohio State University); Franzoni, Francesco (Swiss Finance Institute and University of Lugano); Moussawi, Rabih (University of Pennsylvania) |
| Abstract: | We study hedge funds' trading patterns in the stock market during liquidity crises. On average at the time of a crisis, hedge funds reduce their equity holdings by 9% to 11% per quarter (around 0.3% of total market capitalization). This effect results from large selling by up to a quarter of hedge funds and is not offset by other hedge funds expanding their positions. Dramatic selloffs took place in the 2008 crisis: hedge funds sold about 30% of their stock holdings and almost every fourth hedge fund sold more than 40% of its equity portfolio. We identify two main drivers of this behavior. First, we impute about half of the variation in equity selloffs to a response to lender and investor funding withdrawals. Second, it appears that hedge funds mobilize capital to other (potentially less liquid) markets in the pursuit of more profitable investment opportunities. |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2010-2&r=mst |