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

47 Pages Posted: 24 Jan 2011

See all articles by Harrison G. Hong

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: January 2011

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.

Suggested Citation

Hong, Harrison G. and Yogo, Motohiro, What Does Futures Market Interest Tell Us About the Macroeconomy and Asset Prices? (January 2011). NBER Working Paper No. w16712. Available at SSRN: https://ssrn.com/abstract=1744667

Harrison G. Hong (Contact Author)

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

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United States

National Bureau of Economic Research (NBER)

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Motohiro Yogo

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

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