BIGFI/Finance Seminar with Amy Huber, Wharton University of Pennsylvania
The Department of Finance and BIGFI are proud to announce the upcoming seminar with Amy Huber, Wharton University of Pennsylvania.
Seminar Details
Solbjerg Plads 3
2000 Frederiksberg
Room SPs07
Please join us for a BIGFI/Finance Seminar with Amy Huber, Wharton University of Pennsylvania.
Amy Huber will present:
We quantify how uninformed demand affects exchange rates in an interconnected FX market. Using 11 years of daily customer-bank FX flows and exchange-rate returns across 17 currencies, we find that a $1 billion demand shock to one currency moves other exchange rates by up to 9 basis points, with substantial heterogeneity across currency pairs. Our key insight is that cross-currency propagation can be decomposed into factor-level repricing and currencies' exposures to common risks. We make this decomposition empirically tractable by identifying three traded risk factors that account for 90% of the non-diversifiable risk banks bear when absorbing customer demand imbalances and that plausibly exhibit no cross-factor price effects. We estimate each factor's price sensitivity using sovereign bond auction announcements as instruments for non-informational shocks to factor demand and find that the FX market is highly elastic. Consistent with the model's predictions, out-of-sample FX interventions show that shocks originating in one currency transmit broadly across FX markets through shared risk exposures.
