"Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange"
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.
Type
Journal articleSubject
Anticipations dataAsset return volatility
Expectations data
Forecasting
Macroeconomic news announcements
Market microstructure
Order flow
exchange rates
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Tim Bollerslev
Juanita and Clifton Kreps Distinguished Professor of Economics, in Trinity College
of Arts and Sciences
Professor Bollerslev conducts research in the areas of time-series econometrics, financial
econometrics, and empirical asset pricing finance. He is particularly well known
for his developments of econometric models and procedures for analyzing and forecasting
financial market volatility. Much of Bollerslev’s recent research has focused on
the analysis of newly available high-frequency intraday, or tick-by-tick, financial
data and so-called realized volatility measures, macroeconomic news annou

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