46 Pages Posted: 22 Mar 2009 Last revised: 24 Jun 2012
Date Written: April 24, 2012
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.
Keywords: Bonds, Business cycle, Commodities, Currencies, Futures market, Inflation
JEL Classification: E31, E37, F31, G12, G13
Suggested Citation: 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: https://ssrn.com/abstract=1364674 or http://dx.doi.org/10.2139/ssrn.1364674