An Analysis on Trading Behaviors of Currency Futures: Evidence from BRICS Countries

Chiu-Lan Chang, Ming Fang


This study uses Markov-switching vector autoregressive analysis (MSVAR) to examine the interaction between the trading activities of hedgers and speculators for the currency futures of four BRICS emerging countries traded on the Chicago Mercantile Exchange (CME). First, we investigate the effect of net positions by type of trader to test the relation between currency futures volatility and the trading positions. We employ Granger Causality tests to analyze lead and lag relations between currency futures volatility and the trading positions. Second, we investigate the dynamic interactions between futures price volatility and traders’ trading activities using MSVAR under a generalization of Hamilton’s model to a vector auto-regressive framework we can identify regime shifts occurring mainly simultaneously. Main finding is that speculators and day traders destabilize the market for futures. Whether hedgers stabilize or destabilize the market is inconclusive. The results suggest that speculators’ demand for futures goes down in response to increased volatility.

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Accounting and Finance Research
ISSN 1927-5986 (Print)   ISSN 1927-5994 (Online) Email:

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