Effectiveness of foreign exchange intervention and technical trading rules: An investigation into the Reserve Bank of Australia and Bank of Japan

Ting Wai Ng (2011). Effectiveness of foreign exchange intervention and technical trading rules: An investigation into the Reserve Bank of Australia and Bank of Japan Honours Thesis, UQ Business School, The University of Queensland.

       
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Author Ting Wai Ng
Thesis Title Effectiveness of foreign exchange intervention and technical trading rules: An investigation into the Reserve Bank of Australia and Bank of Japan
School, Centre or Institute UQ Business School
Institution The University of Queensland
Publication date 2011-10
Thesis type Honours Thesis
Supervisor Dr Shams Pathan
Total pages 88
Language eng
Subjects 1502 Banking, Finance and Investment
Abstract/Summary This thesis examines the effectiveness of the Australian and Japanese central banks foreign exchange intervention. To be more specific, the effectiveness of intervention refers to the ability of the operation to stabilise the foreign exchange rate. Given the importance of the Australian dollar and the Japanese Yen in the foreign exchange market, the sample consists of the daily intervention series of two central banks: the Reserve Bank of Australia (RBA) in the period 1983-2009 and the Bank of Japan (BoJ) in the period 1991-2004. In addition, this thesis also tests the relationship between foreign exchange intervention and profitability of technical trading rules. With regard to the intervention effectiveness of the two central banks, the results from the EGARCH model suggested that: (i) RBA intervention had achieved an overall effectiveness in decreasing the exchange rate and the exchange rate volatility with at least a day lag; (ii) the effectiveness of RBA intervention was mostly contributed by large intervention; (iii) BoJ intervention was ineffective as sustained and large intervention would further destabilise the exchange rate. As to the comparison of the intervention effectiveness during the financial crises and the normal times, the results showed some evidence that both RBA and BoJ sustained interventions during the financial crises period were more effective than the sustained intervention in normal times in relation to stabilising the exchange rate. However, the lagged and size effects of interventions were not effective. Therefore, the overall intervention effectiveness did not improve during the financial crises period. In terms of the relationship between the foreign exchange intervention and the technical trading rule profitability, the independent t-test results indicated: (i) a strong relationship between the RBA intervention and the profitability of technical trading rules; (ii) trading in the same direction as the RBA intervention was more profitable than trading against the intervention; (iii) no evidence that BoJ intervention was related to the technical trading rule return due to infrequent intervention in Japan; (iv) BoJ intervention data did not add value to the technical analysis.

 
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Created: Thu, 28 Jun 2012, 15:05:45 EST by Karen Morgan on behalf of UQ Business School