Distinguished Speaker Series: On the Network of Global Currencies: Does Lead-Lag Connectedness Matter?

03 avr 2020

This seminar will feature Dr. Duc Khuong Nguyen of IPAG Business School. His research first uses the conditional Granger causality to measure lead-lag network connectedness among the most globally traded currencies. From this, it then investigates the informational content of system-wide dynamic connectedness and examines the relationship between node connectedness and exchange rate variations.

The panel regression results reveal that node connectedness has significant effects on mean return, standard deviation, and Value at Risk after controlling for certain fundamental and market behavior variables. More importantly, an increase in a currency’s lead-lag connectedness predicts greater variations in its values vis-`a-vis the USD the following year. The research also finds evidence that the node with higher centrality before the global financial crisis faced more extreme depreciation than in the crisis period.

At the broader level, the dynamic system-wide lead-lag connectedness is seen to spike during high-risk episodes, become more stable in a lower-risk environment, and co-integrate with VIX, Vstoxx, and rolling TED spread. It could also capture major systemic events like Lehman Brothers’ collapse, the get-through of European Stability Mechanism in September 2012 as well as Brexit.