On the predictability of carry trade returns: The case of the Chinese Yuan

Cheong, Calvin W. H.; Sinnakkannu, Jothee; Ramasamy, Sockalingam

doi:10.1016/j.ribaf.2016.09.007

Cited by 9 publications

(9 citation statements)

References 37 publications

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“…where r k and r m are, respectively, the returns of portfolio k and the market benchmark while μ and σ are, respectively, the mean and standard deviation Siddique, 1999, 2000;Ang et al, 2006). Implicitly, investors of high coskewness portfolios are compensated for the additional risk they bear, which in effect, means such portfolios act as a hedge against volatility and as such, should earn lower risk-adjusted returns (Menkhoff et al, 2012;Dobrynskaya, 2014;Cheong et al, 2017).…”

Section: Coskewnessmentioning

confidence: 99%

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Nexus between risk sharing vs non-risk sharing financing and economic growth of Bangladesh

Chowdhury

Akbar²,

Shoyeb

2018

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and finally, Quoc Cuong Phan and Taha Bhatti for the excellent research assistance in managing some of the papers in this issue. 646 MF 44,6 regarding the effect of these two variables to risk exposure and efficacy of both Islamic and conventional banking systems. In order to add more value to current literature with reference to the differences between Islamic and conventional banking systems, Bougatef and Korbi aimed to study the factors that explain intermediation margins under both Islamic and conventional banks operating in the Middle East and North Africa. By using the dynamic panel modeling approach, they revealed different determinants of net profit margins under these two systems. Utilizing various methodologies including Markowitz's (1952) portfolio optimization, visual data representations and the classic Fama-Macbeth (1973) two-pass procedure regressions, Cheong investigated the ability of the Islamic Gold Dinar to hedge against foreign exchange market volatility. His findings documented a new hedging instrument to diversify investors' currency portfolios. In the later article, Chowdhury, Akbar and Mohammad examined the relationship between Islamic financing principles and economic growth in Bangladesh using auto regressive distributive lags. Having considered all annual reports of Islamic banks in Bangladesh, this group of authors shed light on how the economic growth responds to the risk sharing and non-risk sharing instruments. In the wake of the GFC, predicting financial distress in banking systems has been increasingly more critical in order to prevent future economic downturns. In their paper, Halteh and his co-authors; Kumar and Gepp aimed to forecast the failure by using cutting-edge stochastic models including decision trees, stochastic gradient boosting and random forests to study 101 international publicly listed Islamic banks. Their findings add value to the literature on the issue of Islamic banking and predicting financial distress. To examine the differences in investors' perceptions concerning the response to the issuance of Sukuk and conventional bonds, Hassan, Ahmed and Rayfield observed significantly negative abnormal returns before and after the announcement date of Sukuk issuance. By utilizing linear and logistic regression models, they found an interesting connection: first, between firms' characteristics and these abnormal returns; and second, issuers' preferences between issuing Sukuk and conventional bonds. Mahmood, Gan and Nguyen, by utilizing the two-step system GMM estimation technique on 55 full-fledged Islamic banks from 11 different countries, have analyzed various factors at both firm-specific and macroeconomic levels, in order to explore their impacts on maturity transformation risk. This paper makes an important contribution to studying maturity transformation risk which is considered one of the major causes of the global financial crisis. Md Zabri and Mohammed examined the acceptability of the Cash Waqf-financial cooperative-Musharakah Mutanaqisah (MM) home financing...

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Section: Coskewnessmentioning

confidence: 99%

“…The dollar risk factor (DOL) meanwhile, is defined as the average excess returns of all currencies in the global sample (Lustig et al, 2011;Menkhoff et al, 2012;Cheong et al, 2017) and is computed as:…”

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confidence: 99%

Nexus between risk sharing vs non-risk sharing financing and economic growth of Bangladesh

Chowdhury

Akbar²,

Shoyeb

2018

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“…The application of the research presented in this contribution is also interesting. It is clear that the RMB is perceived, mainly due to the strict monetary control of the People's Bank of China (Cheong et al 2017), as a relatively controversial currency. On the other hand, in the current situation of relatively massive budget deficits and quantitative easing,…”

Section: Discussionmentioning

confidence: 99%

Use of Neural Networks to Accommodate Seasonal Fluctuations When Equalizing Time Series for the CZK/RMB Exchange Rate

Rowland

Lăzăroiu

Podhorská

2020

Risks

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The global nature of the Czech economy means that quantitative knowledge of the influence of the exchange rate provides useful information for all participants in the international economy. Systematic and academic research show that the issue of estimating the Czech crown/Chinese yuan exchange rate, with consideration for seasonal fluctuations, has yet to be dealt with in detail. The aim of this contribution is to present a methodology based on neural networks that takes into consideration seasonal fluctuations when equalizing time series by using the Czech crown and Chinese yuan as examples. The analysis was conducted using daily information on the Czech crown/Chinese yuan exchange rate over a period of more than nine years. This is the equivalent of 3303 data inputs. Statistica software, version 12 by Dell Inc. was used to process the input data and, subsequently, to generate multi-layer perceptron networks and radial basis function neural networks. Two versions of neural structures were produced for regression purposes, the second of which used seasonal fluctuations as a categorical variable–year, month, day of the month and week—when the value was measured. All the generated and retained networks had the ability to equalize the analyzed time series, although the second variant demonstrated higher efficiency. The results indicate that additional variables help the equalized time series to retain order and precision. Of further interest is the finding that multi-layer perceptron networks are more efficient than radial basis function neural networks.

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“…a global bear run explains the volatility in carrying trade positions. As an extension to both studies, Cheong et al (2017) showed that investors were compensated against global forex risks due to an active transfer of wealth between equity markets and foreign currency-denominated assets. Prior studies contend that gold serves as an adequate hedge against the volatility of stocks and bonds (Baur and Lucey, 2010;Beckmann et al, 2015) and foreign currency (Cheong, 2018) owing to its safehaven properties and relatively stable prices.…”

Section: Introductionmentioning

confidence: 95%

Cryptocurrencies vs global foreign exchange risk

Cheong

2019

JRF

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Purpose This study aims to examine the properties of four major cryptocurrencies and how they can be used as a simpler alternative mode of hedging foreign exchange (FX) risks as compared to existing mainstream financial risk management techniques. Design/methodology/approach This study uses a combination of visual data representations and the classic Fama and Macbeth (1973) two-pass procedure regressions. Findings The findings show that cryptocurrencies can be a more effective hedge against FX risks as compared to other common hedging instruments and/or techniques such as gold or a diversified currency portfolio. Research limitations/implications The conclusions were arrived at based only on a small group of cryptocurrency, i.e. Bitcoin, Ethereum, Litecoin and Ripple. Other cryptocurrencies such as Dogecoin or ZCash might exhibit different properties. Practical implications Cryptocurrencies can be cost-effective and cost-efficient instruments that provide a solid hedge for investors and/or firms that are exposed to global FX volatility. Its ease of trade and virtually zero barriers to entry makes it an easily accessible alternative hedge instrument as compared to more complex items such as derivatives. Originality/value If cryptocurrencies are to be accepted into mainstream usage, a detailed examination of its various uses is necessary. In particular, as they are often touted to be the future of currency, its properties and price behavior relative to other mainstream financial instruments need to be well-understood, not only by finance professionals but also by laypersons.

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On the predictability of carry trade returns: The case of the Chinese Yuan

Cited by 9 publications

References 37 publications

Nexus between risk sharing vs non-risk sharing financing and economic growth of Bangladesh

Nexus between risk sharing vs non-risk sharing financing and economic growth of Bangladesh

Use of Neural Networks to Accommodate Seasonal Fluctuations When Equalizing Time Series for the CZK/RMB Exchange Rate

Cryptocurrencies vs global foreign exchange risk

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