Should we pay attention to investor attention in forex futures market?

Abstract

ABSTRACT We investigate whether forex futures dynamics is responsive to change in investor attention. The currencies used in the study are the AUD (Australian Dollar), CAD (Canadian Dollar), EUR (Euro), GBP (Great Britain Pound) and JPY (Japanese Yen), all in terms of USD. The Google Search Volume Index (SVI) serves as the investor attention proxy. Our results determine the multiplicate relationships of forex futures return and trading volume with SVI (investor attention). Lagged SVI impacts current forex futures return and trading volume. However, there is no nonlinear relationship between forex futures and SVI. Financial contagion among forex futures has also been analysed through the channel of investor attention (SVI). There seems to be hardly any evidence that attention to other currency markets gives rise to the contagion effect. The findings of the study are barely affected by the inclusion of control variables such as currency spot rate and fundamental variables of uncertainty, suggesting that investor attention has an influencing role in the forex futures market.