Thesis (Selection of subject)Thesis (Selection of subject)(version: 336)
Assignment details
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Relationship between liquidity and volatility of selected exchange rate pairs
Thesis title in Czech: Vztah mezi likviditou a volatilitou u vybraných směnných kurzů
Thesis title in English: Relationship between liquidity and volatility of selected exchange rate pairs
Key words: liquidity, volatility, foreign exchange, currency
English key words: liquidity, volatility, foreign exchange, currency
Academic year of topic announcement: 2012/2013
Type of assignment: Bachelor's thesis
Thesis language: angličtina
Department: Institute of Economic Studies (23-IES)
Supervisor: prof. PhDr. Ladislav Krištoufek, Ph.D.
Author: hidden - assigned by the advisor
Date of registration: 14.05.2013
Date of assignment: 21.05.2013
Date and time of defence: 17.06.2014 00:00
Venue of defence: IES
Date of electronic submission:12.05.2014
Date of proceeded defence: 17.06.2014
Reviewers: Mgr. Daniel Benčík
 
 
 
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References
CARLSTON, B.: Examining the Commonality in Liquidity and Volatility risk. Duke university, working papers, 2012, http://econ.duke.edu/people/carlston/research

GOYENKO, R. Y., HOLDEN, C. W. & TRZCINKA CH. A.: Do Measures of Liquidity Measure Liquidity? Journal of Financial Economics 92, pp. 153-181, 2009

LOCKE, P. R., SARKAR, A.: Volatility and Liquidity in Futures Markets, Federal Reserve Bank of New York, 1996, http://www.newyorkfed.org/research/staff_reports/research_papers/9612.html

MANCINI, L., RANALDO, A. & WRAMPELMEYER, J.: Liquidity in the Foreign Exchange Market: Measurement, Commonality, and Risk Premiums. Journal of Finance, Forthcoming, 2012, http://ssrn.com/abstract=1447869
Preliminary scope of work
In the thesis, I will examine how liquidity and volatility are interrelated in foreign exchange market. Forex has not been studied as extensively as equity or bond markets, mainly because of its opaque structure and data unavailability, but it has improved. I will start with construction of liquidity (some measures in Goyenko, Holden & Trzcinka will be used) and volatility measures of several exchange rate pairs. Then, time series analysis will be performed and based on the results, conclusion will be made. Hypotheses about the relationship are following: 1) liquidity is negatively related to volatility and 2) increase (or decrease) in volatility precedes decrease (increase) in liquidity, because holding large inventories is more risky in times of high volatility and market-makers, as a result, decrease provided liquidity.

Outline:
1) Introduction
2) Theoretical background
3) Description of data
4) Estimation of liquidity and volatility
5) Relationship between liquidity and volatility
6) Conclusion
Preliminary scope of work in English
In the thesis, I will examine how liquidity and volatility are interrelated in foreign exchange market. Forex has not been studied as extensively as equity or bond markets, mainly because of its opaque structure and data unavailability, but it has improved. I will start with construction of liquidity (some measures in Goyenko, Holden & Trzcinka will be used) and volatility measures of several exchange rate pairs. Then, time series analysis will be performed and based on the results, conclusion will be made. Hypotheses about the relationship are following: 1) liquidity is negatively related to volatility and 2) increase (or decrease) in volatility precedes decrease (increase) in liquidity, because holding large inventories is more risky in times of high volatility and market-makers, as a result, decrease provided liquidity.

Outline:
1) Introduction
2) Theoretical background
3) Description of data
4) Estimation of liquidity and volatility
5) Relationship between liquidity and volatility
6) Conclusion
 
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