{"id":2091053,"date":"2018-11-02T14:30:27","date_gmt":"2018-11-02T09:00:27","guid":{"rendered":"http:\/\/stockviz.biz\/index.php\/?p=2091053"},"modified":"2018-11-05T14:39:51","modified_gmt":"2018-11-05T09:09:51","slug":"usdinr-and-dollar-indices-part-i","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2018\/11\/02\/usdinr-and-dollar-indices-part-i\/","title":{"rendered":"USDINR and Dollar Indices, Part I"},"content":{"rendered":"

The St. Louis Fed publishes a number of economic and financial series on its Federal Reserve Economic Data (FRED) database. It is a treasure trove of information for quants. There are a number of currency related time-series in the database. In this post, we will plot the USDINR exchange rate with the trade-weighted indices available on FRED to explore any relationships that there might be between them.<\/p>\n

Trade-weighted indices<\/h3>\n

A trade-weighted dollar index is simply the weighted average of the foreign exchange value of the U.S. dollar against the currencies of a group of U.S. trading partners. The FRED publishes the following such indices:<\/p>\n

    \n
  1. DTWEXB<\/strong>: Includes the Euro Area, Canada, Japan, Mexico, China, United Kingdom, Taiwan, Korea, Singapore, Hong Kong, Malaysia, Brazil, Switzerland, Thailand, Philippines, Australia, Indonesia, India<\/em>, Israel, Saudi Arabia, Russia, Sweden, Argentina, Venezuela, Chile and Colombia.<\/li>\n
  2. DTWEXM<\/strong>: Includes the Euro Area, Canada, Japan, United Kingdom, Switzerland, Australia, and Sweden.<\/li>\n
  3. DTWEXO<\/strong>: Includes Mexico, China, Taiwan, Korea, Singapore, Hong Kong, Malaysia, Brazil, Thailand, Philippines, Indonesia, India<\/em>, Israel, Saudi Arabia, Russia, Argentina, Venezuela, Chile and Colombia.<\/li>\n<\/ol>\n

    Additionally, they also publish the DEXINUS series that is the USDINR exchange rate.<\/p>\n

    These series go back to the mid-70’s and mid-90’s. However, India was a closed economy with a managed currency for the most parts. So for the rest of this post, we will consider data only from 2005 onward.<\/p>\n

    Here is how the time-series looks:
    \n\"FRED<\/a><\/p>\n

    Beta between USDINR and the rest<\/h3>\n

    What we are interested in is the relationship between USDINR and the rest of the trade-weighted averages. DTWEXB and DTWEXO have India exposure with the latter made up predominantly of emerging markets. So we should expect a high beta between USDINR and those.<\/p>\n

    To calculate the beta, we will fit a linear model through USDINR and each of the trade-weighted indices in turn. Also, we will force the intercept to be zero to force the fit.<\/p>\n

    Here are the betas with a 20-day look-back:
    \n    \"20-day<\/a><\/p>\n

    Here are the betas with a 50-day look-back:
    \n    \"50-day<\/a><\/p>\n

    The 20-day chart shows that the beta oscillates within a tight band for the most part. This insight can be used to build a mean-reversion model for USDINR. <\/p>\n

    In Part II<\/a>, we will explore the spread between USDINR and all three of the indices. Stay tuned!<\/p>\n

    Code and charts are on github<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

    The St. Louis Fed publishes a number of economic and financial series on its Federal Reserve Economic Data (FRED) database. It is a treasure trove of information for quants. There are a number of currency related time-series in the database. In this post, we will plot the USDINR exchange rate with the trade-weighted indices available … <\/p>\n","protected":false},"author":2,"featured_media":2091073,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3471],"tags":[2761,2721],"class_list":["post-2091053","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing-insight","tag-quant","tag-usdinr","entry"],"_links":{"self":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/2091053","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/comments?post=2091053"}],"version-history":[{"count":0,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/2091053\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media\/2091073"}],"wp:attachment":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media?parent=2091053"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/categories?post=2091053"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/tags?post=2091053"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}