The Euro‐Dollar Exchange Rate: How Traders’ Behaviour Has Been Affected by the 2007–2008 Financial Crisis

Abstract

This paper investigates the dynamics of the Euro/US dollar exchange rate before, during and after the global financial crisis using intra‐day data in a sample covering the period 2003–2011. The paper extends over the conventional empirical framework and specifies an EGARCH (3,1) model to account for heterogeneity in three temporal trading zones and for asymmetric volatility to news. The findings indicate the presence and evolution of differences in Euro/US exchange rate dynamics across American, European and Asian trading zones before and during the financial crisis. As a result of the crisis, traders in the three areas have modified their reactions to scheduled news, unscheduled surprises and content of policies. Developing a better understanding of how traders' behaviour has adjusted since the onset of the crisis is an important issue given the global significance of this exchange rate and the considerable volatility experienced over the sample period.

A three-tiered nested analytical approach to financial integration: The case of emerging and frontier equity markets

“…The estimated coefficients show that the US emerging market investors were positively affected by the strengthening of the dollar-yen exchange rate before and after the 2007-2009 financial crisis, but that they were negatively affected by the strengthening of the dollar-euro rate. This result is in line with existing literature (see, for instance, Cagliesi et al, 2016), and it is a stylised fact that since 2003 (after the burst of the high-tech bubble) the US dollar and the Standard and Poor index have shown a negative relation. This is because a stronger dollar would prompt investors to sell their shares of US firms because of the loss of competition, and also sell shares of international firms in mixed portfolios because of the risk associated with their indebtedness in the dollar.…”

“…Following a standard procedure, we calculate the surprise (news) by taking the difference between the actual released values and the expected values (as per the experts' consensus collected by Econoday) before the actual releases of the specific US macroeconomic indicator. We selected those macroeconomic indicators that several empirical studies of the news approach identified as more relevant (see, for instance, Fair, 2003;Ehrmann and Fratzscher, 2005;Cagliesi et al, 2016;Caporale et al, 2016). We focused only on US surprises and did not include surprises of emerging and frontier markets' macroeconomic variables.…”

Exchange Rates and Macro News in Emerging Markets

“…Intra-day data are also analysed by Cagliesi et al (2013) for the US dollar/euro exchange rate during the period 2003-2011. Specifically, they consider thrice-daily series for three eight-hour time zones (Asian, European and American) making up the global trading day.…”

Exchange rate responses to macroeconomic announcement on the COVID-19 pandemic

“…First, this research will contribute to the study of the efficient market hypothesis (EMH) in the foreign exchange rate market (Fatum et al, 2012;Iyke, 2019). Second, this study provides an overview of how the USD/IDR exchange rate will respond to the emergence of different macroeconomic announcements (Cagliesi et al, 2016;Caporale et al, 2017;Égert & Kočenda, 2014). Third, this study shows how the macroeconomic announcement affects the USD/IDR exchange rate before and during the COVID-19 pandemic (Aslam et al, 2020;Cagliesi et al, 2016).…”