Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange

38 Pages Posted: 17 May 2002

See all articles by Clara Vega

Clara Vega

Board of Governors of the Federal Reserve System

Torben G. Andersen

Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER); Aarhus University - CREATES

Tim Bollerslev

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

Francis X. Diebold

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

Multiple version iconThere are 2 versions of this paper

Date Written: April 2002

Abstract

Using a new dataset consisting of six years of real-time exchange rate quotations, macroeconomic expectations, and macroeconomic realizations (announcements), we characterize the conditional means of U.S. dollar spot exchange rates versus German Mark, British Pound, Japanese Yen, Swiss Franc, and the Euro. In particular, we find that announcement surprises (that is, divergences between expectations and realizations, or "news") produce conditional mean jumps; hence high-frequency exchange rate dynamics are linked to fundamentals. The details of the linkage are intriguing and include announcement timing and sign effects. The sign effect refers to the fact that the market reacts to news in an asymmetric fashion: bad news has greater impact than good news, which we relate to recent theoretical work on information processing and price discovery.

Keywords: Exchange Rates, Macroeconomic News Announcements, Jumps, Market Microstructure, High-Frequency Data, Expectations Data, Anticipations Data, Order Flow, Asset Return Volatility, Forecasting

Suggested Citation

Vega, Clara and Andersen, Torben G. and Bollerslev, Tim and Diebold, Francis X., Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange (April 2002). Available at SSRN: https://ssrn.com/abstract=312158 or http://dx.doi.org/10.2139/ssrn.312158

Clara Vega

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

HOME PAGE: http://www.federalreserve.gov/research/staff/vegaclarax.htm

Torben G. Andersen

Northwestern University - Kellogg School of Management ( email )

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Evanston, IL 60208
United States

National Bureau of Economic Research (NBER) ( email )

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Aarhus University - CREATES ( email )

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Denmark

Tim Bollerslev

Duke University - Finance ( email )

Durham, NC 27708-0120
United States
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919-684-8974 (Fax)

Duke University - Department of Economics

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United States

National Bureau of Economic Research (NBER)

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Francis X. Diebold (Contact Author)

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
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United States
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215-573-4217 (Fax)

HOME PAGE: http://www.ssc.upenn.edu/~fdiebold/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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