Handbook of Exchange Rates (eBook)

JESSICA JAMES, PhD, is a Managing Director and Co-Head of the Quantitative Solution Team at Commerzbank in London, where she is responsible for FX client risk advisory. She has published on the topics of credit derivatives and total return swaps and is the coauthor of Interest Rate Modelling (Wiley). IAN W. MARSH, PhD, is Professor of Finance in the Cass Business School at City University London. Dr. Marsh has extensive consulting experience with companies including JPMorgan Chase, Morley Fund Managment, and the Royal Bank of Scotland. He currently focuses his research on credit risk transfer markets and the foreign exchange market. LUCIO SARNO, PhD, is Associate Dean, Head of Faculty, and Professor of Finance in the Cass Business School at City University London. Dr. Sarno has extensive industry experience in consulting and trading foreign exchange for several major asset management companies and has contributed to policy, training, and research for the International Monetary Fund, the European Central Bank, and the World Bank.

Part I. Overview

1. Foreign Exchange Market Structure, Players and Evolution 1

2. Macro Approaches to Foreign Exchange Determination 49

3. Micro Approaches to Foreign Exchange Determination 79

4. The Exchange Rate in a Behavioural Finance Framework 119

5. The Evolution of Exchange Rate Regimes and Some Future Perspective 145

Part II. Exchange Rate Models and Methods

6. Purchasing Power Parity in Economic History 175

7. Purchasing Power Parity in Tradable Goods 203

8. Statistical and Economic Methods for Evaluating Exchange Rate Predictability 239

9. When Are Pooled Panel-Data Regression Forecasts of Exchange Rates More Accurate than the Time-Series Regression Forecasts? 283

10. Carry Trades and Risk 301

11. Currency Fair Value Models 335

12. Technical Analysis in the Foreign Exchange Market 369

13. Modeling Exchange Rates with Incomplete Information 403

14. Exchange Rates in a Stochastic Discount Factor Framework 421

15. Volatility and Correlation Timing in Active Currency Management 453

Part III. FX Markets and Products

16. Is There a Premium for Currency Investing (Beta) 485

17. Is There Skill or Alpha in Currency Investing? 509

18. Currency Hedging for International Bond and Equity Investors 539

19. FX Reserve Management 577

20. High frequency finance: Using scaling laws to build trading models 597

21. Algorithmic Execution in Foreign Exchange 621

22. Foreign Exchange Strategy Based Products 635

23. Foreign exchange futures, forwards and swaps 661

24. Options and Volatility Derivatives 687

Part IV. FX Markets and Policy

25. A Common Framework for Thinking about Currency Crises 741

26. Official Intervention in the Foreign Exchange Market 763

27. Exchange Rate Misalignment - The Case of the Chinese Renminbi 797