| Summary: | 碩士 === 東海大學 === 財務金融學系 === 103 === Foreign exchange market is the market for global transactions. The rapid shifts in capital flows increase the market volatility, which may cause impacts on the national economy. On this account, the behavior of investors in face of the exchange market pressure (EMP) has become an important issue to explore. Nevertheless, while the foreign exchange market volatility increases, the market price volatility also provides the possibility of carry trade. Therefore, for investors, mastering the exchange market pressure well is the key to the decision-making of carry trade.
Focusing on the above-mentioned aspect, this study explored the association between the EMP index and the carry trade returns gained from the forward foreign exchange market. In addition, non-deliverable forward market (NDF) was selected as the research subject, and six countries with the highest NDF trading volume were chosen for research, including South Korea, India, China, Brazil, Taiwan and Russia. In this study, the bivariate GARCH approach was used to identify the dynamic relationship between all the considered variables. From the empirical findings, it was found that as for the conditional mean equations, the carry trade returns have a negative transmission effect on the EMP. From the reverse perspective, the EMP has a negative transmission effect on the carry trade returns in South Korea, Brazil and Russia but positive in India, China and Taiwan. In terms of conditional variance equations, it was found that the carry trade returns have a volatility spillover effect on the EMP in all countries, excluding South Korea, where the volatility asymmetry spillover effect is discovered. On the other hand, the EMP has a volatility spillover effect but no volatility asymmetric spillover effect on the carry trade returns in Brazil, Taiwan and Russia. Furthermore, from the estimated conditional covariance equation, time-varying correlation coefficients were found in the relationship between the EMP and the carry trade returns. Finally, this study also found that whether for conditional mean equations or conditional variance equations, the carry trade returns have a relatively high impact on the EMP.
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