Abstract

This paper examines the dynamic correlation between currency futures prices. Using the Dynamic Conditional Correlation model (Engle, 2002) this study utilizes time-varying correlations, focusing on the persistency of correlation of currency prices. The sample includes eight currency futures traded on the Chicago Mercantile Exchange from 1999 to 2008 and the U.S. dollar index future. The study finds that the Canadian dollar and the Australian dollar have the highest persistency while the Swiss franc and the Russian ruble have the lowest persistency. In addition, the study finds that the time-varying conditional correlation between currency futures and the U.S. dollar futures is influenced by a country’s macroeconomic conditions.

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