We thank Lim Kian-Guan, Eli Remolona and Noli Sotocinal for insightful comments. Excellent research assistance from Junray Bautista is gratefully acknowledged. The views and opinions expressed here are the authors' own and do not necessarily reflect the views and policies of the institutions they are affiliated with.
Article first published online: 24 JUN 2013
© 2013 John Wiley & Sons Ltd
The World Economy
Volume 37, Issue 6, pages 811–833, June 2014
How to Cite
Gochoco-Bautista, M. S., Wang, J. and Yang, M. (2014), Commodity Price, Carry Trade, and the Volatility and Liquidity of Asian Currencies. World Economy, 37: 811–833. doi: 10.1111/twec.12089
- Issue published online: 9 JUN 2014
- Article first published online: 24 JUN 2013
This study examines how the volatility and liquidity of 10 Asian exchange rates against the US dollar change with volatilities in commodity price and carry trade over the period of January 2000 to June 2010. We find that uncertainties in commodity markets and carry trades are significantly correlated with the volatilities and the bid-ask spreads of most Asian currencies. The correlation with carry trade is generally stronger and has been rising over the sample period. While high volatilities in carry trade are associated with high volatilities in many Asian currencies, high volatilities in commodity price do not coincide with excessive volatilities in Asian currencies. This suggests that investors and policymakers should be more concerned with the volatility in carry trade.