Foreign Exchange Responses to Macroeconomic Surprises: Playing “Peek-a-Boo” with Financial Markets

Loading...
Thumbnail Image

Date

2012-04-16

Journal Title

Journal ISSN

Volume Title

Repository Usage Stats

345
views
5001
downloads

Abstract

This paper explores the relationship between precisely timed macroeconomic “news” (or “surprises”) and the immediate currency price fluctuations that surround them. Using data from 2005-2011, I find significant movements in foreign exchange markets around a variety of announcements (unemployment, GDP, retail sales, inflation) for three different countries (United States, Australia, Canada). My results demonstrate that in the very short-run, as in the long run, the value of a country’s currency is driven by its macroeconomic fundamentals. Upon further investigation, this paper also uncovers the following financial phenomena in these foreign exchange responses to macroeconomic surprises: asymmetric response, nonlinearity, financial stress, liquidity, and exchange rate specificity. These phenomena refer to the difference in responses between: positive and negative surprises, big versus small surprises, pre-crisis versus crisis surprises, ten- versus sixty-minute returns, and two distinct reference currencies, respectively.

Department

Description

Provenance

Citation

Citation

Nathan, Vignesh (2012). Foreign Exchange Responses to Macroeconomic Surprises: Playing “Peek-a-Boo” with Financial Markets. Honors thesis, Duke University. Retrieved from https://hdl.handle.net/10161/5141.


Dukes student scholarship is made available to the public using a Creative Commons Attribution / Non-commercial / No derivative (CC-BY-NC-ND) license.