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 |
| Thesis type: | 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 |
| Opponents: | Mgr. Daniel Benčík |
| URKUND check: | |
| 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 |