Swiss Franc Research Articles

Cross-border shopping: Evidence and welfare implications for Switzerland

Consumers access foreign goods by purchasing them domestically or shopping abroad. We present new facts on cross-border shopping by Swiss households showing, for example, that prices of identical products are lower in neighboring countries, cross-border shopping shares fall with distance to the border, and price gaps and cross-border shopping shares rose following the 2015 Swiss Franc appreciation. We use a simple model of cross-border shopping to quantify how variation across space in cross-border shopping results in heterogeneous changes in cost-of-living in response to changes in international prices such as the 2015 Swiss Franc Appreciation and the 2020 Covid-19-related closing of the border.

Inner Multifractal Dynamics in the Jumps of Cryptocurrency and Forex Markets

Jump dynamics in financial markets exhibit significant complexity, often resulting in increased probabilities of subsequent jumps, akin to earthquake aftershocks. This study aims to understand these complexities within a multifractal framework. To do this, we employed the high-frequency intraday data from six major cryptocurrencies (Bitcoin, Ethereum, Litecoin, Dashcoin, EOS, and Ripple) and six major forex markets (Euro, British pound, Canadian dollar, Australian dollar, Swiss franc, and Japanese yen) between 4 August 2019 and 4 October 2023, at 5 min intervals. We began by extracting daily jumps from realized volatility using a MinRV-based approach and then applying Multifractal Detrended Fluctuation Analysis (MFDFA) to those jumps to explore their multifractal characteristics. The results of the MFDFA—especially the fluctuation function, the varying Hurst exponent, and the Renyi exponent—confirm that all of these jump series exhibit significant multifractal properties. However, the range of the Hurst exponent values indicates that Dashcoin has the highest and Litecoin has the lowest multifractal strength. Moreover, all of the jump series show significant persistent behavior and a positive autocorrelation, indicating a higher probability of a positive/negative jump being followed by another positive/negative jump. Additionally, the findings of rolling-window MFDFA with a window length of 250 days reveal persistent behavior most of the time. These findings are useful for market participants, investors, and policymakers in developing portfolio diversification strategies and making important investment decisions, and they could enhance market efficiency and stability.

Realized Volatility Spillover Connectedness among the Leading European Currencies after the End of the Sovereign-Debt Crisis: A QVAR Approach

This paper examines the time-varying spillover effects and connectedness between the euro and other EU and non-EU currencies after the end of the sovereign-debt crisis. We employ the Quantile Vector Autoregression connectedness approach using intraday data for seven currencies (the euro, the British pound, the Swiss franc, the Polish zloty, the Hungarian forint, the Czech koruna, and the Norwegian krone) spanning from 1 January 2016 to 30 November 2022. The results indicate that, almost in all quantiles, the currencies of Eastern European Group countries (i.e., Czech Republic, Hungary, and Poland) are net contributors of information spillovers to other currencies, while currencies of non-EU countries (Switzerland, UK, and Norway) are net takers. Further, we find that the euro is the highest transmitter of net information spillovers to all other currencies until 2021. Interestingly, after 2021, the euro changes to net information spillover taker from all other currencies; highlighting that external shocks (e.g., COVID-19, the energy crisis) have significant risk spillover effects on the European currency market. Policymakers and market participants could benefit from knowing which currency drives developments to avoid unexpected consequences.

ANALYSIS OF THE LABOR COMPENSATION OF PRISONERS OF WAR IN UKRAINE

The article examines the issue of compensation of prisoners of war currently held in Ukraine. It is noted that 75 years have passed since the adoption of the Geneva Convention relative to the Treatment of Prisoners of War, and some of its provisions are now outdated or irrelevant. One of these norms is the amount of compensation for the labour of prisoners of war. Since there is some debate about the criterion of fairness today, the authors analyse the purchasing power of the Swiss franc in 1949 versus 2024 and provide a conclusion on this issue. Key words: prisoners of war, labour, labour compensation, labour relations, employment, State Criminal and Executive Service of Ukraine, International Committee of the Red Cross, international humanitarian law, Geneva Convention, legal status, prisoner of war camps, prisoner of war detention centres.

Domestic financial conditions and MNCs’ global competitiveness: evidence from the Swiss franc shock

Domestic financial conditions and MNCs’ global competitiveness: evidence from the Swiss franc shock

EXCHANGE RATE VOLATILITY OF UKRAINE’S MAIN TRADING PARTNERS

Ukraine, as an open economy under conditions of Russian aggression, is highly vulnerable to the import of exogenous shocks. This is embodied in exchange rate volatility and the emergence of corresponding risks. Most studies are aimed at direct, explicit, or transactional risks. They reflect the negative impact of exchange rate fluctuations on economic entities' cash flows in foreign economic activities. However, changes in currency prices can also affect the subjects oriented to the local market and not carry out operations in foreign currencies by changing competitiveness. One speaks about the indirect, implicit, or economic currency risk in this case. The latter generally arises in the event of volatility in the exchange rates of currencies of importing countries or competitors. The study is devoted to the analysis of indirect currency risks, which reflect potential adaptations of competitiveness due to changes in exchange rates. For this purpose, the currencies of the countries that account for about 80% of Ukraine's trade turnover over the last 10 years, namely the euro, Japanese yen, British pound, Swiss franc, yuan, Indian rupee, Czech krona, Polish zloty, Hungarian forint, and Turkish lira were chosen. The article aims to assess the volatility of exchange rates of Ukraine's main trading partners as a stage of analyzing economic currency risks. The paper uses statistical methods for volatility estimation and distribution characteristics, namely standard deviation, skewness, and kurtosis. The obtained results show that some currencies have a high level of asymmetry and excess, indicating possible unpredictable rate changes. The calculated indicators' generalization allows identifying currencies with relatively high and low risk. The article complements the results of previous studies, as it covers both major reserve currencies and currencies of leading countries whose markets are developing globally and in Europe. Estimates of asymmetry and excess exchange rate distributions are essential for effective currency risk management.

Time-variant safe haven currencies

This study investigates the temporal variation in the safe haven status of the Japanese yen, Swiss franc, and U.S. dollar, using a rolling GARCH-in-mean model. Until the global financial crisis, the U.S. dollar was likely a safe haven currency, while the Swiss franc has been one since the crisis. The Japanese yen later emerged as a safe haven and retained its status during the U.S.–China trade friction and the COVID-19 pandemic. The findings suggest that national economic policies, market liquidity, and socio-political events affect safe haven status.

Exchange Rates and Capital Market Instruments – Analysis Based on the Example of Switzerland before and during the Covid-19 Pandemic

The purpose of the article. The aim of the article is to present factors influencing foreign exchange rates and to examine the relationship between them and stock and bond indices in Switzerland in the period before and during the COVID-19 pandemic. The hypothesis that the studied relationships changed as a result of the turmoil caused by the pandemic crisis was verified.
 Methodology. To verify the hypothesis, linear and non-linear functions were analyzed, and Pearson's correlation indices between the examined instruments were calculated.
 Results of the research. As a result of the analysis, it was found that the relationship between the CHF exchange rate index and stock indices is non-linear, and the relationship between the CHF exchange rate index and bond indices is linear. Correlation coefficients before the pandemic indicated strong relationships between the CHF exchange rate index and the examined capital market indices, and moreover, the relationship with stock indices was positive and with bond indices negative. It was found that during the pandemic, the correlation with bond indices changed and became positive. The motivation of the analysis is related to the spotlight on a Swiss franc as a result of numerous financial decisions related to this currency.

Global uncertainty and potential shelters: gold, bitcoin, and currencies as weak and strong safe havens for main world stock markets

This article investigates five safe-haven asset responses from 2014 to 2022, including the unprecedented COVID-19 crisis, Russian invasion of Ukraine, and sharp US interest rate increases of 2015 and 2022. We apply the unique approach of the multivariate factor stochastic volatility (MSV) model, which is extremely efficient for financial market analysis and allows us to conduct dynamic factor analysis of safe-haven relationships that cannot be observed directly. The research sample consists of five prospective safe-haven assets—gold, bitcoin, the euro, the Japanese yen, and the Swiss franc—and five primary world stock market indices—the S&P 500, Financial Times Stock Exchange (FTSE) 100, DAX, STOXX Europe 600, and Nikkei 225. Our findings are useful for investors searching for the best safe-haven assets among gold, bitcoin, and currencies to hedge against financial turmoil in global stock markets. Our unique findings suggest that safe-haven effects work differently for gold and the yen; that is, the Japanese yen acts as the strongest safe haven across all stock indices. Bitcoin is not a strong safe-haven currency since it has zero days of negative correlations with the considered stock indices, but it is a weak safe-haven during times of financial distress. Consequently, we state that strong and weak safe-haven properties vary across time and place. The novelty of our study lies in the methodological complexity of the MSV model (used for the first time to find the best safe-haven asset properties), dynamic factor analysis, a long-term research sample covering the Russian invasion of Ukraine in 2022, and an international investor perspective focusing on the world’s leading stock markets. We extend earlier studies by analyzing the interrelations of the world’s leading stock market indices with five potential safe-haven assets during the long period of 2014–2022 and using a unique dynamic factor analysis to show the differentiated behaviors of the Japanese yen and gold. Additionally, the main innovative contribution is a new framework of weak and strong safe-haven asset classifications not previously applied in the literature.

Detecting Multiple Level Shifts in Bounded Time Series

The article proposes a sequential statistical procedure to test for the presence of level shifts affecting bounded time series, regardless of their order of integration. The article shows that bounds are relevant for the statistic that assumes that the time series are integrated of order one. In contrast, they do not affect the limiting distribution of the statistic that is defined for time series that are integrated of order zero. The article proposes a union rejection statistic for bounded processes that does not require information about the order of integration of the stochastic processes. The model specification is general enough to consider the existence of structural breaks that can affect either the level of the time series and/or the bounds that limit its evolution. Monte Carlo simulations indicate that the procedure works well in finite samples. An empirical application that focuses on the Swiss franc against the euro exchange rate evolution illustrates the usefulness of the proposal.

Spillover effects of Ruble’s turmoil on foreign exchange markets after the invasion of Ukraine

ABSTRACT Russia’s invasion of Ukraine significantly impacted the global economy. This study examines the asymmetric spillover effects of dramatic fluctuations in the ruble on other currencies when Western countries imposed economic sanctions on Russia. Under the sanctions, the ruble showed not only a large depreciation but also a large appreciation. Using hourly data from late February to mid-March 2022, we explore their effects on 10 major currencies. We find that a large depreciation caused a depreciation in the European currencies. This might reflect the fact that sanctions on Russia damaged European economies, which relied heavily on Russian energy. However, we also find that a large appreciation led to a significant depreciation of the Chinese yuan (CNY) and a significant appreciation of the Swiss franc (CHF). The CNY depreciated by 0.2% and the CHF appreciated by 0.8% when the ruble appreciated by 10%. Noting that a large appreciation occurred because of Russia’s large-scale interventions in the foreign exchange market, this implies that the Russian government defended the ruble at unprecedented scales by selling CNYs and purchasing CHFs. A rise of new bipolarized world currency regimes caused a new spillover effect on economic partners after the invasion.

The role of hedge funds in the Swiss franc foreign exchange market

The role of hedge funds in the Swiss franc foreign exchange market

Modeling the interest rates term structure using Machine Learning: a Gaussian process regression approach

The correct modeling of the interest rates term structure should definitely be considered an aspect of primary importance since the forward rates and the discount factors used in any financial and risk analysis are calculated from such structure. The turbulence of the markets in recent years, with negative interest rates followed by their recent substantial rise, the period of the COVID pandemic crisis, the political instabilities linked to the war between Ukraine and Russia have very often led to observe anomalies in the shape of the interest rate curve that are difficult to represent using traditional econometric models, to the point that researchers have to address this modeling problem using Machine Learning methodologies. The purpose of this study is to design a model selection heuristic which, starting from the traditional ones (Nelson-Siegel, Svensson and de Rezende-Ferreira) up to the Gaussian Process (GP) Regression, is able to define the best representation for a generic term structure. This approach has been tested over the past five years on term structures denominated in five different currencies: the Swiss Franc (CHF), the Euro (EUR), the British Pound (GBP), the Japanese Yen (JPY) and the U.S. Dollar (USD).

The Interplay Between the CJEU and National Courts in the Case Law on Unfair Contract Terms in Foreign Currency Loans: A Comparative Overview

Abstract Over the years, the UCTD has become one of the core EU directives aiming at the protection of both businesses and consumers (B2C), i.e., at the achievement of the appropriate balance between the parties’ rights and obligations. However, the UCTD has also left quite a number of important legal questions unanswered. Besides the general clauses on the assessment of the unfairness of contractual terms, there remains a high degree of uncertainty as to the meaning of the transparency requirement and the legal consequences of unfair contractual terms. As a result, in spite of CJEU settled case law, as well as European Commission interpretation guidelines, there are diverging patterns in the national case law of the Member States. The aim of this paper is to investigate these diverging patterns by looking more closely into national case law and into the relationship between the CJEU and the Member States courts, taking as a case study the way in which the UCTD was applied in five countries (Austria, Croatia, France, Italy and Poland) in cases involving consumer loans indexed to the Swiss franc. The survey shows that there are noticeable differences in the interpretation of core concepts underlying the UCTD, such as the unfairness test, the exclusions from the unfairness assessment, and the transparency requirement. The most problematic areas, however, concern the legal consequences of the unfairness of contractual terms. By relying on the analysis of these and related issues, the authors have come to the conclusion that347 even after 30 years of the existence of the UCTD, there are still many important legal questions that need solving.

How do irresponsibility attributions affect organisational reputation? Evidence from the banking industry

PurposeThis study examines how potentially irresponsible banking operations affect organisational reputation. A moderated mediation model is applied to explain how major aspects of social irresponsibility affect the relationship between consumer awareness of allegedly irresponsible operations, blame and bank reputation. The empirical context is the Swiss franc mortgage crisis that affected the banking industry in most Central and Eastern European countries.Design/methodology/approachThe research study uses data collected from a large survey (N = 1,000) conducted among Polish bank consumers, including those with mortgage loans in Swiss francs. To test the proposed model, the authors use Hayes' process macro.FindingsThe findings show that blame fully mediates the effects of corporate social irresponsibility (CSI) awareness on organisational reputation. Three facets of social irresponsibility moderate this relationship. Specifically, the perceived harm and intentionality of corporate culprits cause people to be more likely to blame a bank for the difficulties posed by indebted consumers. At the same time, the perceived complicity of consumers in misselling a mortgage reduces the level of blame and its subsequent adverse effects on bank reputation.Originality/valueAlthough a strong reputation is crucial in the financial industry, few studies have attempted to address reputational risk from a consumer perspective. This study helps to understand how potentially irresponsible selling of a financial product can adversely affect a bank's reputation.

Precious metals and currency markets during the Russia-Ukraine conflict’s inflationary periods

The contemporary conflict between two countries Russia and Ukraine has caused intensification in the increasing prices of commodities and energy owing to the supply chain disruption and the sanctions imposed on both countries. The previous literature has validated that Russia-Ukraine conflict substantially affects financial and economic operations of other countries. Therefore, the key aim of conducting this study is to inspect the dynamic spillover connectedness between the four leading precious metals (such as Gold, Palladium, Platinum, and Silver) and seven major currency markets (including Euro, British Pound, Australian Dollar, Swiss Franc, Japanese Yen, Canadian Dollar, and Chinese Yuan). The study includes the dataset from 24 January 2022–31 May 2022 to cover the inflationary period. Accordingly, the Time-Varying Parameter Vector Autoregression framework is applied. Granger linear causality and BDS nonlinear causality techniques are also employed to examine the causal effect of geopolitical risk in aforementioned connectedness. The findings reveal that Platinum has a strong spillover towards all the considered currencies except the Japanese Yen. The increasing demand for Platinum during the conflict secured it to receive the spillover. While the Japanese Yen is a net transmitter of spillover indicating the Japanese Yen as sturdiest currency during the conflict. The causality test reveals that geopolitical risk causes spillover connectedness across the precious metals and the currency markets during inflationary period. This study is significant for policymakers, investors, and portfolio managers while developing strategies or making critical investment decisions.

Monetary Datum Fractal Analysis Using the Time Series Theory

The paper will allow the interpretation of exchange rate fluctuations for several international currencies, the EUR—European currency and the CHF—Swiss Franc, respectively. The fractal dimension versus box-counting dimension, together with the fractal dimension versus log scale for CHF and EUR, respectively, are thoroughly presented. The exchange rate time series for CHF and EUR during March–June 2022 were also analyzed. The Hurst exponent H was numerically evaluated. By the application of directional symmetry (DS) statistics, the model efficiency in predicting the direction modification of time series has been verified. Ultimately, the prognosis of EUR-RON and CHF-RON exchange rates of the time series fluctuations for the last months (August–December) of the year 2022 was performed.

On the role of interest rate differentials in the dynamic asymmetry of exchange rates

Motivated by the lack of empirical evidence in favour of the uncovered interest rate parity rule, we revisit the informational content of interest rate differentials (IRD) to explain daily exchange rates variations. Proposing a novel version of a GARCH model, we allow for the IRD to impact on the time-varying conditional asymmetry of the depreciation rate. We find IRD to be a significant factor for the Euro (EUR), the Swiss franc (CHF), the Swedish Krona, the Japanese Yen and the British Pound. These findings empirically support currency crash theories, suggesting that the larger the difference between interest rates, the more likely the high-yield currency appreciates on average but also exhibits greater risk of a large depreciation. Compared to random walk and buy-and-hold benchmarks, we document superior out-of-sample mean returns of a trading rule exploiting IRD information for EUR and CHF.

Unequal Expenditure Switching: Evidence from Switzerland

Abstract What are the unequal effects of changes in consumer prices on the cost of living? In the context of changes in import prices (driven by, e.g. changes in trade costs or exchange rates), most analyses focus on variation across households in initial expenditure shares on imported goods. However, the unequal welfare effects of non-marginal foreign price changes also depend on differences in how consumers substitute between imported and domestic goods, on which there is scant evidence. Using data from Switzerland surrounding the 2015 appreciation of the Swiss franc, we provide evidence that lower-income households have higher price elasticities. We quantify the contribution of heterogeneous elasticities for the unequal welfare effects of observed price changes between 2014 and 2015 and for counterfactual shocks to the mean and dispersion of import price changes.

What Makes the Swiss Banks Special?

The Swiss banking sector has long been famous for its success in attracting foreign assets and wealthy clients. This article aims to analyze the reasons behind the success of Swiss banks by considering various factors. The research paper includes a literature review, methodology, and examination of key elements such as foreign assets, Indian 'black money,' the largest Swiss banks, the impact of the coronavirus crisis, Swiss banking secrecy, overall country stability, stable currency, and globalization. The study reveals that Swiss banks have historically been a preferred destination for people from politically and economically unstable countries seeking secure storage for their wealth. The existence of banking secrecy laws, dating back to 1930s, has played a significant role in attracting international clients, although other factors have also contributed to the success of the sector. The analysis of foreign assets shows a substantial amount of money held in Swiss banks, accounting for a significant portion of global cross-border assets. Indian 'black money' has also found its way to Swiss banks, although efforts to disclose account information have been ongoing. The largest Swiss banks, including UBS and Credit Suisse, have played a pivotal role in the country's financial sector. The impact of the coronavirus pandemic on the Swiss banking industry was analyzed, showing that despite challenges, the industry managed to offer new jobs and maintain profitability. The study emphasizes the importance of Swiss banking secrecy, which has been a key factor in attracting wealthy clients for centuries. However, it argues that secrecy alone does not fully explain the success of the Swiss banks. Other factors, such as overall country stability, a stable and easy convertible currency like the Swiss Franc, and the role of globalization in facilitating international operations, have all contributed to the sector's prominence. In conclusion, the success of Swiss banks is a result of multiple factors working together. While banking secrecy has played a significant role, other favorable conditions such as political stability, a strong currency, and global outreach have also contributed to Switzerland's status as a global financial hub. Understanding the interplay of these elements sheds light on the reasons behind the exceptional performance of the Swiss banking sector.