Price Discovery in Currency Markets: Evidence from Three Emerging Markets

This study investigates the price discovery role of the spot and the futures markets for the Brazilian real, South African rand and Russian ruble. Three methodologies are employed: open-end multiple structural analyses, vector error correction model, and reduced form computation of the information shares. Within the full period of the data sample, three non-overlapping sub-periods are identified and analyzed. The findings indicate that while the futures market has a more prominent role in price discovery for the Brazilian real, the spot market has a leading position in the Russian ruble. The South African rand results are mixed. Further, the estimated short-run lead-lag results suggest that in general the dynamics of the three emerging currency markets are not the same.