Interdependence and dynamics in currency futures markets: A multivariate analysis of intraday data

This paper investigates long-term interdependencies and short-term dynamics in currency futures utilizing intraday data for six major foreign currenci es: the British Pound, Deutsche Mark, Swiss Franc, Australian Dollar, Canad ian Dollar, and Japanese Yen. Lack of cointegration (CI) among the foreign exchange futures is found to be the prevailing mode of behavior, but some t emporal deviations from the no-CI condition are detected. There is a notabl e overlap between detected CI relationships and the timing of policy change s, world events, and regime shifts, indicating that the observed CIs are ev ent-driven. The robustness of the CI results is checked with respect to var iations in the model, lag structure, data period, sample horizon, and curre ncy basket grouping. Impulse-response functions (IRFs) reveal that currency markets are in general efficient and absorb new information within the day . The interdependence among currencies is found to be asymmetric. (C) 2001 Elsevier Science B.V. All rights reserved.