The Swiss Job: Exchange rate comovements and the volatility spillover before and after the Swiss National Bank’s unpegging decision

We analyse the effect of Central Bank intervention in the foreign exchange market within the context of the Swiss National Bank's decision to unpeg the Swiss Franc from the Euro in January 2015. This intervention involving an exchange rate of a safe-haven currency is an interesting setting to investigate time-varying currency comovements and volatility spillovers. We find that post-unpegging, average comovements and volatility spillovers among major currencies have decreased. We study the practical implications of this analysis by estimating and examining currency hedge ratios. We find that hedge ratios, on average, have decreased since the unpegging decision. JEL classification : C32, C58, E58, F31, F41 and G15