Abstract

http://ssrn.com/abstract=1364674
 
 

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What Does Futures Market Interest Tell Us about the Macroeconomy and Asset Prices?


Harrison G. Hong


Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

Motohiro Yogo


Princeton University - Department of Economics

April 24, 2012

Journal of Financial Economics (JFE), Vol. 105, No. 3, 2012
AFA 2010 Atlanta Meetings Paper

Abstract:     
Economists have traditionally viewed futures prices as fully informative about future economic activity and asset prices. We argue that open interest could be more informative than futures prices in the presence of hedging demand and limited risk absorption capacity in futures markets. We find that movements in open interest are highly pro-cyclical, correlated with both macroeconomic activity and movements in asset prices. Movements in commodity market interest predict commodity returns, bond returns, and movements in the short rate even after controlling for other known predictors. To a lesser degree, movements in open interest predict returns in currency, bond, and stock markets.

Number of Pages in PDF File: 46

Keywords: Bonds, Business cycle, Commodities, Currencies, Futures market, Inflation

JEL Classification: E31, E37, F31, G12, G13


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Date posted: March 22, 2009 ; Last revised: June 24, 2012

Suggested Citation

Hong, Harrison G. and Yogo, Motohiro, What Does Futures Market Interest Tell Us about the Macroeconomy and Asset Prices? (April 24, 2012). Journal of Financial Economics (JFE), Vol. 105, No. 3, 2012; AFA 2010 Atlanta Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1364674 or http://dx.doi.org/10.2139/ssrn.1364674

Contact Information

Harrison G. Hong
Princeton University - Department of Economics ( email )
Princeton, NJ 08544-1021
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Motohiro Yogo (Contact Author)
Princeton University - Department of Economics ( email )
26 Prospect Ave
Princeton, NJ 08540-5296
United States
HOME PAGE: http://sites.google.com/site/motohiroyogo/

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