'Once-in-a-generation' yen volatility in 1998: Fundamentals, intervention, and order flow

Jun Cai; Stephen Y L Cheung; Raymond S.K. Lee; Michael Melvin

doi:10.1016/S0261-5606(00)00056-5

'Once-in-a-generation' yen volatility in 1998: Fundamentals, intervention, and order flow

Jun Cai^*, Stephen Y L Cheung, Raymond S.K. Lee, Michael Melvin

^*Corresponding author for this work

Research output: Contribution to journal › Journal article › peer-review

71 Citations (Scopus)

Abstract

The dramatic yen/dollar volatility of 1998 has been popularly ascribed to order flow driven by changing tastes for risk and hedge-fund herding on unwinding yen 'carry trade' positions rather than fundamentals. High-frequency evidence of shifting fundamentals is provided by a comprehensive list of macroeconomic announcements. News is found to have significant effects on volatility, but order flow may play a more important role. Since portfolio shifts are revealed to the market through trading, the results are consistent with order flow playing a significant role in the revelation of private information and associated exchange rate shifts.

Original language	English
Pages (from-to)	327-347
Number of pages	21
Journal	Journal of International Money and Finance
Volume	20
Issue number	3
DOIs	https://doi.org/10.1016/S0261-5606(00)00056-5
Publication status	Published - Jun 2001

Scopus Subject Areas

Finance
Economics and Econometrics

User-Defined Keywords

C22
Central bank intervention
Exchange rate volatility
F31
G14
G15
News announcements
Order flow
Private information

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10.1016/S0261-5606(00)00056-5

Cite this

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title = "'Once-in-a-generation' yen volatility in 1998: Fundamentals, intervention, and order flow",

abstract = "The dramatic yen/dollar volatility of 1998 has been popularly ascribed to order flow driven by changing tastes for risk and hedge-fund herding on unwinding yen 'carry trade' positions rather than fundamentals. High-frequency evidence of shifting fundamentals is provided by a comprehensive list of macroeconomic announcements. News is found to have significant effects on volatility, but order flow may play a more important role. Since portfolio shifts are revealed to the market through trading, the results are consistent with order flow playing a significant role in the revelation of private information and associated exchange rate shifts.",

keywords = "C22, Central bank intervention, Exchange rate volatility, F31, G14, G15, News announcements, Order flow, Private information",

author = "Jun Cai and Cheung, {Stephen Y L} and Lee, {Raymond S.K.} and Michael Melvin",

note = "Funding Information: We would like to thank City University of Hong Kong for its support. In addition, financial support from RGC Competitive Earmarked Research Grants 1994–1996 and 1996–1998 (Cai) is gratefully acknowledged. Helpful comments on an earlier draft were provided by Charles Goodhart, Richard Lyons, Bettina Peiers, and the anonymous referees. Finally, we thank Tim Bollerslev for sharing his programs. ",

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AU - Cheung, Stephen Y L

AU - Lee, Raymond S.K.

AU - Melvin, Michael

N1 - Funding Information: We would like to thank City University of Hong Kong for its support. In addition, financial support from RGC Competitive Earmarked Research Grants 1994–1996 and 1996–1998 (Cai) is gratefully acknowledged. Helpful comments on an earlier draft were provided by Charles Goodhart, Richard Lyons, Bettina Peiers, and the anonymous referees. Finally, we thank Tim Bollerslev for sharing his programs.

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AB - The dramatic yen/dollar volatility of 1998 has been popularly ascribed to order flow driven by changing tastes for risk and hedge-fund herding on unwinding yen 'carry trade' positions rather than fundamentals. High-frequency evidence of shifting fundamentals is provided by a comprehensive list of macroeconomic announcements. News is found to have significant effects on volatility, but order flow may play a more important role. Since portfolio shifts are revealed to the market through trading, the results are consistent with order flow playing a significant role in the revelation of private information and associated exchange rate shifts.

KW - C22

KW - Central bank intervention

KW - Exchange rate volatility

KW - F31

KW - G14

KW - G15

KW - News announcements

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'Once-in-a-generation' yen volatility in 1998: Fundamentals, intervention, and order flow

Abstract

Scopus Subject Areas

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