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

38 Pages Posted: 24 May 2002 Last revised: 27 Oct 2010

See all articles by Torben G. Andersen

Torben G. Andersen

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

Clara Vega

Board of Governors of the Federal Reserve System

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: May 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.

Suggested Citation

Andersen, Torben G. and Vega, Clara and Bollerslev, Tim and Diebold, Francis X., Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange (May 2002). NBER Working Paper No. w8959. Available at SSRN: https://ssrn.com/abstract=313660

Torben G. Andersen (Contact Author)

Northwestern University - Kellogg School of Management ( email )

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Clara Vega

Board of Governors of the Federal Reserve System ( email )

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Tim Bollerslev

Duke University - Finance ( email )

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Francis X. Diebold

University of Pennsylvania - Department of Economics ( email )

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

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