New Techniques  |  DEC 1998

The Yen, Recursed by Dennis Meyers, Ph.D.

Combine the exponential moving average with a trend estimate to identify changes in the direction of the market. The Japanese yen (JY) is a major currency traded worldwide by corporations, institutions, banks, commodity funds and futures traders. The yen is traded 24 hours a day and most of the world’s largest banks make a two-sided market in the yen and its associated derivatives. Small traders, however, are constrained to trade the yen futures on the Chicago Mercantile Exchange (CME). The JY futures are traded from 7:20 am to 2 pm on the CME and from 2:30 pm to 7:05 am overnight Monday through Thursday, and 5:30 pm overnight to 7:05 am Sundays and holidays on the CME Globex system. While the CME yen futures trading volume is small compared with total worldwide bank and institutional trading volume, arbitrage keeps the futures prices in line with the bigger markets. DATA DISCUSSION The JY futures contract on the CME trades in the quarterly cycles of March, June, September, and December. The current active yen futures contract is the JY December 1998. This is the CME futures contract that expires on the second business day before the third Wednesday of December 1998. The JY March 1999 will become the active contract one week before the December 1998 expiration day. The yen is the currency of Japan. Each JY futures contract is worth the dollar value of 12,500,000 yen. On September 4, 1998, The Wall Street Journal reported that the JY December 1998 futures contract closed at 0.7584 dollars per 100 JY, making one JY contract worth $94,800 = (12,500,000)(0.7584/100). The JY future trades in units of $0.000001 per yen, and thus, a move of one tick of $0.000001 is worth $12.50 per contract ($0.000001 $/JY multiplied by 12,500,000 = $12.50). Yen futures started trading on 1975. However, for the purposes of this article, we will limit our study to the price history from January 1, 1988, to today, using a JY futures continuous contract. Since JY futures contracts expire each quarter, a continuous contract is constructed by switching to the active contract on rollover day and back-adjusting the difference in prices between the new contract and the old, thus creating a smooth continuous contract.

by Dennis Meyers, Ph.D.