Two Essays on Currency Market and Sentiment

Robert Normand, PhD
Currency forecasts, currency implied volatility

Abstract :

The Value of Currency Forecasts: This paper examines whether users of consensus currency forecasts can exploit information of relative ranking of currency expected returns. Despite currency forecasters are not able to beat a random walk as a single currency forecast, the rank expected returns could lead to significant abnormal returns. The rank currency forecasts are explained by the main generic trading models used by practitioners and that has been proven to be successful in the past.

Currency Implied Volatility: A Panel Data Approach: This paper uses panel data analysis in order to investigate the determinants of currency implied volatility dynamics. The causal relationship between currency implied volatility, realized volatility and forex exchange is reassessed using panel data analysis. We find evidence that the implied volatilities dynamics across the term structure and across currencies are driven by common factors, have a long memory, and are partially cointegrated. The dynamics of implied volatility curve cause subsequent forex exchange development. Implied volatility curve dynamics seems to be driven by forecast volatility, currency expectations, sentiment, and extreme risk valuation.

Publication date of the thesis

Thesis committee

Supervisor: Abraham Lioui, EDHEC Business School

External reviewer: Allan Timmermann, UC San Diego Rady School of Management 

Other committee member: Nikolaos Tessaromatis, EDHEC Business School