FX Market Returns and Their Relationship to Investor Fear

摘要

This note examines the relationship between changes in levels of investor fear (measured by the implied volatility index) and foreign exchange market returns. Our empirical results indicate a negative relationship between daily returns on high-interest rate (investing) currencies and changes in the implied volatility index, while the association is positive for low-interest rate (funding) currencies. That is, investing (funding) currencies tends to depreciate (appreciate) when investor fear incr