Impact of trading hours extensions on foreign exchange volatility:intraday evidence from the Moscow exchange

Using transaction-level tick-by-tick data of same-and next-day settlement of the Russian Ruble versus the US Dollar exchange rate(RUB/USD)traded on the Moscow Exchange Market during the period 2005–2013,we analyze the impact of trading hours extensions on volatility.During the sample period,the Moscow Exchange extended trading hours three times for the same-day settlement and two times for the next-day settlement of the RUB/USD rate.To analyze the effect of the implementations,various measures of historical and realized volatility are calculated for 5-and 15-min intraday intervals spanning a period of three months both prior to and following trading hours extensions.Besides historical volatility measures,we also examine volume and spread.We apply an autoregressive moving average-autoregressive conditional heteroscedasticity(ARMA-GARCH)model utilizing realized volatility and a trade classification rule to estimate the probability of informed trading.The extensions of trading hours cause a significant increase in both volatility and volume for further analyzing the reasons behind volatility changes.Volatility changes mostly occur after the opening of the market.The length of the extension has a significant positive effect on realized volatility.The results indicate that informed trading increased substantially after the opening for the rate of same-day settlement,whereas this is not observed for next-day settlement.Although trading hours extensions raise opportunities for more transactions and liquidity in foreign exchange markets,they may also lead to higher volatility in the market.Furthermore,this distortion is more significant at opening and midday.A potential explanation for the increased volatility mostly at the opening is that the trading hours extension attracts informed traders rather than liquidity providers.

The Role of Institutions:A Cross-country Analysis of Renminbi Trading in Foreign Exchange Markets

We explore how China's geographically targeted policies impact RMB overseas use individually or in combination.The policies include swap agreements,clearing banks,investment quotas,and direct trading between Chinese renminbi(RMB)and non-USD currencies.Adopting a fuzzy-set qualitative comparative analysis and using Bank of International Settlements cross-country data on foreign exchange markets,we find that institution building has lowered the barriers to international adoption of the RMB.Specifically,for countries economically close to China,high RMB trading is explained by either(i)having a clearing bank in the host market and direct quotations between the RMB and the local currency,or(ii)being a financial center and having access to the Chinese capital market.This combination of policies is explained by the creation of(i)"trading posts"that provide RMB liquidity abroad,and(ii)channels that allow actors to " recycle" offshore RMB funds.We triangulate our results with interviews conducted with senior People’s Bank of China officials.

Is the Renminbi a Global Currency?An Evaluation Based on Offshore Foreign Exchange Market Trading Patterns

This article provides a new framework to evaluate the status of Renminbi internationalization.It proposes that the trading patterns of a currency in the global foreign exchange market embody the currency’s position in the international monetary system.Based on foreign exchange trading data provided by CLS Group,the article constructs a ranking of major international currencies including the Renminbi.It finds that the Renminbi shares more similarities in foreign exchange trading patterns with the established global currencies like the US dollar and the Euro than with those regional currencies.The article also explores the policy implications that the new evaluation approach provides.

Regulations on Foreign Exchange Adjustment Market

Article 1. The regulations are promulgated in order to improve and develop the foreign exchange adjustment market, speed up the horizontal circulation of capital in foreign exchange and strengthen the macro-control of the foreign exchange market. Article 2. The State Exchange Control Administration is the governing body of the foreign exchange adjustment market.

Recent Experience of the Effects of Intervention on Exchange Rates

Recently, foreign exchange rates have been highly volatile all over the world. This article reports on an empirical examination of the effectiveness of foreign exchange market intervention in Tokyo foreign exchange market. In Japan, intervention in the foreign exchange market has occurred frequently and largely. In 2010, exchange rates fluctuated greatly, and the Japanese yen appreciated greatly against other foreign currencies. The Bank of Japan （BOJ） conducted an intervention in the foreign exchange market and bought massive USD to weaken the yen. They are expected to prevent too much appreciation of the yen, to promote export, and expansion of the economy. Recent foreign exchange market intervention in Tokyo has been effective in preventing the Japanese yen from appreciating against other currencies. Also, unsterilization has had a positive effect on depreciation of the yen. Moreover, news announcements by the Bank of Japan （BOJ） has led to depreciation of the yen. Effective announcements would increase the effects on markets. Sterilization in intervention and market communication are both taken into account in this article. The BOJ＇s news announcements seem to convey to markets adequately and communication between the bank and markets functions well. Moreover, the past exchange rate （i.e., the signaling effect） also is important to the movement of exchange rates. On the other hand, portfolio channel is not found

To Accomplish the Unaccomplished Reform： Lessons and Options of RMB Exchange Rate Reform

The exchange rate reform initiated on August 11,2015 is an important attempt by the PBoC to transform China's exchange rate regime from the "crawl-like arrangement" to a floating regime.However,after a three-day experiment,the PBoC abandoned the original goal of the reform.Since then,the central bank has implemented a new exchange rate-setting mechanism.Under this mechanism,the central parity of the renminbi(RMB) against the US dollar is decided by the arithmetic average of the RMB exchange rate that keeps the index of a currency basket unchanged over the past 24 hours and the previous day's closing price of USD/CNY.Due to the introduction of the index of a currency basket,additional uncertainty has been introduced into the determination of the RMB exchange rate,because of the uncertainty of the dollar index(USDX).As a result,to a certain extent,the one-way bet on the RMB expectations is weakened.However,the current exchange rate formation mechanism cannot reverse the trend of devaluation of the RMB,nor can it eliminate depreciation expectations.Meanwhile,it hinders the effectiveness of central bank's independent monetary policy based on the domestic economic fundamentals.And also,the "two-way float" created by the new price-setting mechanism is artificial and has led to significant losses of foreign exchange reserve.The paper explains how the new price-setting mechanism works,and identifies the important features of the mechanism and its pros and cons.The paper argues that despite some advantages,the new exchange rate regime as a soft peg regime is not sustainable and the PBoC should stop foreign exchange market intervention as soon as possible.We hope that the PBoC can learn the lessons from the failure of the "August 11 reform" and accomplish the unaccomplished reform in an urgent manner.

Modelling State Foreign Exchange Reserves under the Managed Floating Exchange Rate System in China

The purpose of this paper is to investigate China′s state foreign exchange reserves growth using monthly data in the period January 1994 to December 1998. An economic model is constructed, with a view from its formation mechanism. Time series techniques are used to examine the long run relationship between foreign exchange reserves and the variables included in the model. Our empirical investigation revealed existence of a systematic long run relationship among foreign exchange reserves, exports, imports, and foreign direct investment. In the short run, the Asian financial crises have not significant effect on China′s foreign exchange reserves. Moreover, the recursive tests results indicated that the error correction model was structurally stable over the sample period, implying that the reserve holdings play a significant role in the balance payments adjustment process and separating China economy from the Asian financial crises.

Analysis on the Effectiveness of China＇s Monetary Policy under WTO

Starting from the analysis on the effectiveness of China＇s monetary policy under WTO, this paper advocates that reforms of the operating system of domestic monetary policy and the foreign exchange regime should be carried out in a combined manner. It also touches upon the coordination of exchange rate and interest rate polices. To improve the effectiveness of China＇s monetary policy, it is necessary to shift from the fixed exchange rate regime to the managed floating foreign exchange regime, gradually strengthening the central bank＇s rational control over the foreign exchange market and its construction of China＇s monetary market. It is also of great significance to improve the sterilization operation to guard against the internal fluctuations of money supply.