Can Swap Basis Predict Foreign Exchange Rate? Evidence from KoreaCan Swap Basis Predict Foreign Exchange Rate? Evidence from Korea
- Other Titles
- Can Swap Basis Predict Foreign Exchange Rate? Evidence from Korea
- Authors
- 이동욱; 신은영
- Issue Date
- 2022
- Publisher
- 한국재무학회
- Keywords
- CIP; Forecast; Foreign exchange; Korea; Swap Basis
- Citation
- 재무연구, v.35, no.2, pp.1 - 36
- Indexed
- KCI
- Journal Title
- 재무연구
- Volume
- 35
- Number
- 2
- Start Page
- 1
- End Page
- 36
- URI
- https://scholar.korea.ac.kr/handle/2021.sw.korea/143508
- DOI
- 10.37197/ARFR.2022.35.2.1
- ISSN
- 1229-0351
- Abstract
- For the period from January 2000 to August 2021, we show that changes in the swap basis for Korean won and U.S. dollar predict changes in the exchange rate between the two currencies at weekly frequencies. More precisely, when the basis drops and becomes more negative, the exchange rate rises (i.e., dollar appreciates) subsequently, after controlling for their contemporaneous relation, the serial correlation in the exchange rate movements, and the global financial cycles. The swap basis has a factor structure and its first (level) and the second (slope) factors are useful in predicting the exchange rate, especially when used together. Based on the findings, we propose simple prediction rules that market participants can use in real time.
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Collections - Korea University Business School > Department of Business Administration > 1. Journal Articles
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