The Effect of Forward Excess Return in Forward Exchange Market: Evidence from NDF Market

• Main Authors: CHI, CHIH-LING, 紀智羚
• Other Authors: WANG, KAI-LI
• Format: Others
• Language: zh-TW
• Published: 2017
• Online Access: http://ndltd.ncl.edu.tw/handle/my9ckj

碩士 === 東海大學 === 財務金融學系 === 105 === As globalization triggers international funds to flow rapidly among countries, trading volume of the foreign exchange market continues to increase. The rising economies of the emerging markets in Asia have lead to the increasing importance of emerging market currencies in the global foreign exchange market, and there is regional mutual infection effect. This study adopt the three-variable GARCH model to examine the dynamic factors of NDF excess return in Northeast Asia(Taiwan, Korea and China) and Southeast Asia(Malaysia, Indonesia and Philippines). The purpose of this paper is to discuss NDF markets of emerging markets, and analyze the possible sources that affect forward excess return in NDF markets. The results show that NDF forward premium has better predictive power than DF forward premium in Northeast Asia. However, DF forward premium is more predictive in Southeast Asia. Moreover, for all countries, NDF(DF) forward premium has better explanatory power for short-term(long-term) forward excess returns. When it comes to the difference of domestic and foreign interest rate, it is found that interest rates with different periods have significant predictive power on excess returns in all countries. As for cross-country effect, there is a mechanism for the mutual influence among the countries in the region. Last but not the least, we examine return on volatility transmission, South Korea and China have weak cross-border transmission effect with one-month NDF excess return of Taiwan. Taiwan and South Korea have cross-country volatility effect with each other. Malaysia and Indonesia have a transmission of information in all terms of NDF excess return to Philippines. Indonesia and Philippines have cross-country volatility effect with each other.