The asymmetric effects of U.S. large-scale asset purchases on the volatility of the Canadian dollar futures market

Abstract

This paper investigates the asymmetric effects of U.S. large-scale asset purchases on the volatility of the Canadian dollar futures market. This approach is innovative in so far as it examines the effects of allowing two-round impacts to differ in our settings of dynamic volatility with time-varying jump intensity because the world economic situation differs during periods of large-scale asset purchases. Utilizing the daily futures price of the exchange rate for the Canadian dollar against the U.S. dollar, the empirical findings show that U.S. large-scale asset purchases have significant asymmetric effects on the volatility of the Canadian dollar futures market. Two kinds of asymmetry are observed. Firstly, the impact of large-scale asset purchases is smaller in the first round of the large-scale asset purchases than in the second round. Secondly, an expansionary policy causes higher volatility in the Canadian dollar futures market than does a contractionary policy due to a signal of high liquidity.