Decomposing Intraday Dependence in Currency Markets: Evidence from the AUD/USD Spot Market

The local Hurst exponent, a measure employed to detect the presence of dependence in a time series, may also be used to investigate the source of intraday variation observed in the returns in foreign exchange markets. Given that changes in the local Hurst exponent may be due to either a time-varying range, or standard deviation, or both of these simultaneously, values for the range, standard deviation and local Hurst exponent are recorded and analyzed separately. To illustrate this approach, a high-frequency data set of the spot Australian dollar/U.S. dollar provides evidence of the returns distribution across the 24-hour trading day with time-varying dependence and volatility clearly aligning with the opening and closing of markets. This variation is attributed to the effects of liquidity and the price-discovery actions of dealers.Comment: 3 Figures, 3 Tables, 28 page

The role of banks in the Brazilian Interbank Market: Does bank type matter?

This paper presents an empirical analysis of the Brazilian interbank network structure. The Brazilian interbank market clearly presents a topology that is compatible to the free-scale networks. This market is characterized by money centers, which have exposures to many banks and are the most important source of large amounts of lending. Therefore, they have important positions in the network taken into account by the minimal spanning tree and the power domination measures of the network. We also develop a methodology to compare di®erent banks and their relative importance in the network.

Fluctuation Dynamics in US Interest Rates and the Role of Monetary Policy

This paper presents empirical evidence suggesting that the degree of long-range dependence in interest rates depends on the conduct of monetary policy. We study the term structure of interest rates for the US and find evidence that global Hurst exponents change dramatically according to Chairman Tenure in the Federal Reserve Board and also with changes in the conduct of monetary policy. In the period from 1960's until the monetarist experiment in the beginning of the 1980's interest rates had a significant long-range dependence behavior. However, in the recent period, in the second part of the Volcker tenure and in the Greenspan tenure, interest rates do not present long-range dependence behavior. These empirical findings cast some light on the origins of long-range dependence behavior in financial assets.

The Relationship Between Banking Market Competition and Risk-taking: Do Size and Capitalization Matter?

This paper aims to study the effect of banking competition on Latin American banks' risk-taking and whether capitalization and size changes this relationship. We conclude that: (1) competition affects risk in a non-linear manner: high/low (average) competition are related to more (less) stability; (2) bank's size explains the advantage from competition, while capitalization is only positive for larger banks in this case; (3) capital ratio explains the advantage from lower competition. These results are of uttermost importance for bank regulation, especially due to the recent turmoil in worldwide financial markets.

Forecasting the Yield Curve for the Euro Region

This paper compares the forecast precision of the Functional Signal plus Noise (FSN), the Dynamic Nelson-Siegel (DL), and a random walk model. The empirical results suggest that both outperform the random walk at short horizons (one-month) and that the the FSN model outperforms the DL at the one-month forecasting horizon. The conclusions provided in this paper are important for policy makers, fixed income portfolio managers, financial institutions and academics.