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

46 Pages Posted: 22 Mar 2009 Last revised: 24 Jun 2012

Harrison G. Hong

Columbia University, Graduate School of Arts and Sciences, Department of Economics; National Bureau of Economic Research (NBER)

Motohiro Yogo

Princeton University - Department of Economics; National Bureau of Economic Research

Multiple version iconThere are 2 versions of this paper

Date Written: April 24, 2012

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.

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

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

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

Harrison G. Hong

Columbia University, Graduate School of Arts and Sciences, Department of Economics ( email )

420 W. 118th Street
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

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Motohiro Yogo (Contact Author)

Princeton University - Department of Economics ( email )

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Princeton, NJ 08544
United States

HOME PAGE: http://sites.google.com/site/motohiroyogo/

National Bureau of Economic Research

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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