NONLINEAR DEPENDENCIES IN CURRENCY FUTURES

Several studies have documented nonlinear dependencies in the exchange rates of major currencies. This paper provides similar evidence for the currency futures of the British Pound, Deutsche Mark, Swiss Franc, Canadian dollar, and Japanese Yen. It is established that the GARCH (1,1) model satisfactorily explains the nonlinear dependencies in the contracts investigated. Neither trading-volume/open-interest, nor the time to maturity or the basis are found to explain the GARCH effects in the data. However, the conditional volatility in the currency futures' is positively related to futures trading activity and the basis. Finally, we find no support for Samuelson's maturity hypothesis.