On the Transmission of Jumps among Asian Major Currency Exchange Rates

Using Hawkes process, this paper examines the transmission of jump shocks between Korea and one of seven Asian foreign exchange markets (Australia, Indonesia, Japan, Philippines, Singapore, Thailand, Taiwan). In univariate estimation, all Asian foreign exchange markets show a fair amount of evidence of self-excitation which means that an occurrence of jump increases the jump intensity of its own future jump. Korea, Indonesia and Thailand foreign exchange market show bigger self-excitation effect than the other countries. Bivariate model estimation suggests asymmetric cross-excitation which is a feedback from a jump in one market to future jumps of the other market. Japan, Taiwan and Indonesia have more influence on the jump of Korean won than the reverse. But Korea has more influence on the jump intensities of Australia, Philippines, Singapore and Thailand than they have on Korea. The estimation of the size of jump excitation may be useful for policy makers and exchange risk managers.