Exchange rate changes and net positions of speculators in the EuroFX futures market - Does market size matter?

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Journal Title
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Volume Title
School of Economics | Master's thesis
Date
2011
Major/Subject
Economics
Kansantaloustiede
Mcode
Degree programme
Language
en
Pages
64
Series
Abstract
This thesis analyses whether the size of the EuroFX futures market (measured through the growth rate of the total open interest in the EuroFX futures market at the Chicago Mercantile Exchange) has an effect in the determination of the Euro per dollar exchange rate in short horizons, and if the relationship between changes in the net positions of speculators in the EuroFX futures market and changes in the Euro per dollar exchange rate is affected by the size of the market. For the period from January 5, 1999 to December 28, 2010, it could be concluded that when the growth rate of the EuroFX futures market is relatively stable, this variable is a determinant to explain exchange rate movements in the short-term, and also that the relationship between changes in the net positions of speculators in the EuroFX futures market and changes in the Euro per dollar exchange rate is affected by the fast growth in the EuroFX futures market. This implies that speculators should consider the growth of the EuroFX futures market to forecast changes in the spot exchange rate when the size of the market is relatively stable.
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Keywords
exchange rate, net positions of speculators, euro futures market, microstructure approach, open interest, growth, size
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