The Moses effect: can central banks really guide foreign exchange markets?

Trivedi, Smita Roy

doi:10.1007/s00181-019-01671-y

Cited by 2 publications

(5 citation statements)

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“…Again the RBI strongly intervenes to stem volatility (Roy Trivedi/Apte 2016), which can explain the higher volatility noted during the intervention period. However, it must be noted here that volatility may be both a cause and an effect of intervention (Roy Trivedi 2019). While the endogeneity issue is a gray area in intervention studies, it has been shown that intervention sees a jump in the volatility in the forex market (Chari 2007;Roy Trivedi 2019).…”

Section: Resultsmentioning

confidence: 89%

“…However, it must be noted here that volatility may be both a cause and an effect of intervention (Roy Trivedi 2019). While the endogeneity issue is a gray area in intervention studies, it has been shown that intervention sees a jump in the volatility in the forex market (Chari 2007;Roy Trivedi 2019). This explains why the intervention period shows a substantially higher volatility than other periods.…”

Section: Resultsmentioning

confidence: 92%

“…I test the profitability of technical analysis indicators in the presence the Indian central bank, the Reserve Bank of India (RBI). The RBI intervenes in the Indian forex market, largely to keep the managed float stable (RBI 2013;Roy Trivedi 2019). The creation of a market shock when the central bank intervenes, I argue, should lead to greater profits from technical analysis in the presence of intervention.…”

Section: Theoretical Backgroundmentioning

confidence: 99%

“…As a proxy for daily intervention, I use data on big deals by public-sector banks as the RBI intervenes through the big public-sector banks in the Indian market. Intervention in the Indian market is thus secret (Roy Trivedi 2019). This data has also been taken from the Cogencis trading platform (Cogencis Information Services 2015), which reports the 'Key deals in the Indian Foreign Exchange market,' detailing which banks groups have bought or sold in the Indian foreign-exchange market.…”

Section: Theoretical Backgroundmentioning

confidence: 99%

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‘Manna from heaven’: does the presence of central banks make technical analysis profitable?

Trivedi¹

2021

European Journal of Economics and Economic Policies: Intervention

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Profitability of technical-analysis strategies has been explained with reference to central-bank intervention in markets (Neely 1998; LeBaron 1999; Saacke 2002). I argue that central-bank intervention is a market shock which leads to a generation of trends, making technical analysis profitable. Looking at empirical evidence from the Indian foreign-exchange market, I find returns calculated for the entire period are consistently and substantially higher than when intervention periods are removed. Thirteen out of the 15 strategies demonstrate higher returns with intervention periods included, compared to without intervention periods. The Kolmogorov–Smirnov sample tests show statistically significant differences in the returns between the entire period and the without-intervention period for four strategies, which is confirmed by bootstrap estimation. The paper contributes first by including actual trading strategies in the empirical testing of profitability of technical analysis and second by emphasizing the efficacy of technical analysis rather than the action of the central bank itself in explaining profitability, in a departure from the existing literature.

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Section: Resultsmentioning

confidence: 89%

Section: Resultsmentioning

confidence: 92%

Section: Theoretical Backgroundmentioning

confidence: 99%

Section: Theoretical Backgroundmentioning

confidence: 99%

See 2 more Smart Citations

‘Manna from heaven’: does the presence of central banks make technical analysis profitable?

Trivedi¹

2021

European Journal of Economics and Economic Policies: Intervention

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“…( 3 ). The use of ordered logit model to look at volatility is well-established in literature (Chari, 2007 ; Roy Trivedi, 2020 ) and helps to understand the reaction of different volatility buckets to the independent variable, here the foreboding index. The difference between high and low (realized range) is an efficient estimator of volatility and may be more suitable to microstructure models than squared intraday returns (Martens & Dijk, 2007 ).…”

Section: Resultsmentioning

confidence: 99%

Into the Unknown: Uncertainty, Foreboding and Financial Markets

Trivedi¹

2023

Asia-Pac Financ Markets

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While the link between financial market movement and economic policy uncertainty indices is well-established in literature, uncertainty in the form of ‘foreboding’ emanating from catastrophic events has not been explored in literature. This paper explores “foreboding”, which reflects uncertainty at its extreme, following the Covid-19 pandemic. Using Natural Language Processing on minute-by-minute news data, I construct two Foreboding Indices, representing ‘foreboding’ or ‘fearful apprehension’, for 28,622 Covid-related news for the period July 2020–August 2021. The impact of foreboding on financial market volatility is explored using a logistic regression model. Both the indices show a marked increase in June–July, 2020, in January 2021, April, 2021, and July–August, 2021 and have a positive impact on volatility for hourly S&P 500 Index. Understanding of foreboding sentiment is crucial for central banks looking to monitor financial market volatility. Appropriate signaling in accordance to sentiment can help central banks handle detrimental impacts of market volatility. Moreover, FI can be used for market practitioners to gauge the sentiment and take effective trading decisions.

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The Moses effect: can central banks really guide foreign exchange markets?

Cited by 2 publications

References 45 publications

‘Manna from heaven’: does the presence of central banks make technical analysis profitable?

‘Manna from heaven’: does the presence of central banks make technical analysis profitable?

Into the Unknown: Uncertainty, Foreboding and Financial Markets

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