by This paper investigates the role of hedge funds within the Swiss franc (CHF) foreign exchange (FX) market, using a novel and comprehensive flow dataset that covers a large proportion of the CHF FX market. Employing a two-stage-least-squares (2SLS) approach, I isolate the causal effect of hedge funds’ net flow on CHF returns, taking into account reverse causality. The analysis reveals that hedge funds’ net flow significantly impacts CHF returns, with a net buying of one billion leading to an approximate 0.4% increase in returns. In contrast, the net flow from other market participants has a negligible impact, even when potential reverse causality is dismissed. This influence of hedge funds’ net flow becomes particularly noticeable on days when the Swiss National Bank (SNB)
Topics:
Swiss National Bank considers the following as important:
This could be interesting, too:
investrends.ch writes «Wir sehen weder ‘Stag-‘ noch ‘-flation’»
investrends.ch writes Finma-Direktor: «Aufsicht muss viel früher eingreifen können»
Martin Hartmann writes Upcoming Events
investrends.ch writes Biden erhöht die Zölle für Elektroautos aus China auf 100 Prozent
This paper investigates the role of hedge funds within the Swiss franc (CHF) foreign exchange (FX) market, using a novel and comprehensive flow dataset that covers a large proportion of the CHF FX market. Employing a two-stage-least-squares (2SLS) approach, I isolate the causal effect of hedge funds’ net flow on CHF returns, taking into account reverse causality. The analysis reveals that hedge funds’ net flow significantly impacts CHF returns, with a net buying of one billion leading to an approximate 0.4% increase in returns. In contrast, the net flow from other market participants has a negligible impact, even when potential reverse causality is dismissed. This influence of hedge funds’ net flow becomes particularly noticeable on days when the Swiss National Bank (SNB) delivers contractionary monetary policy surprises. On such days, even a small surprise amplifies the impact of hedge funds’ net flow significantly. The analysis of market participants’ trading prices substantiates the hypothesis that hedge funds, due to their expertise in FX forecasting and best execution as well as superior transaction timing abilities, in aggregate tend to trade at more advantageous prices than other market participants.