CROSS-SPECULATION IN CURRENCY FUTURES MARKETS

This paper studies cross-market herding of speculators in the Canadian dollar, Swiss francs, British pound and Japanese yen futures markets from 6 October 1992 to 26 January 2010. The relations between (i) total speculation (long plus short), (ii) long speculation and (iii) short speculation are investigated. The empirical results present strong evidence of short-run causal relationships between speculative activities in currency futures markets. There is a significant feedback effect (bidirectional causality) between each pair of total speculation. In addition, impulse response analysis points to positive interrelations between speculative trading activity and therefore to cross-market herding. Copyright (c) 2011 John Wiley & Sons, Ltd.