News announcements and price discovery in foreign exchange spot and futures markets

Yu Lun Chen; Yin Feng Gau

doi:10.1016/j.jbankfin.2010.03.009

News announcements and price discovery in foreign exchange spot and futures markets

Yu Lun Chen, Yin Feng Gau

Department of Finance

Research output: Contribution to journal › Article › peer-review

134 Scopus citations

Abstract

This paper studies competition in price discovery between spot and futures rates for the EUR-USD and JPY-USD markets around scheduled macroeconomic announcements. Using both the information shares approach and the common factor component weight approach for futures prices from the Chicago Mercantile Exchange (CME), as well as deal prices from spot trading on the Electronic Broking Services (EBS), we gauge how foreign exchange spot and futures markets respond to news surprises. The results show that the spot rates provide more price discovery than do the CME futures rates overall; however, the contribution of the futures rates to price discovery increases in the time surrounding macroeconomic announcement releases.

Original language	English
Pages (from-to)	1628-1636
Number of pages	9
Journal	Journal of Banking and Finance
Volume	34
Issue number	7
DOIs	https://doi.org/10.1016/j.jbankfin.2010.03.009
State	Published - Jul 2010

Keywords

Electronic Broking Services (EBS)
Macroeconomic announcements
Price discovery

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10.1016/j.jbankfin.2010.03.009

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title = "News announcements and price discovery in foreign exchange spot and futures markets",

abstract = "This paper studies competition in price discovery between spot and futures rates for the EUR-USD and JPY-USD markets around scheduled macroeconomic announcements. Using both the information shares approach and the common factor component weight approach for futures prices from the Chicago Mercantile Exchange (CME), as well as deal prices from spot trading on the Electronic Broking Services (EBS), we gauge how foreign exchange spot and futures markets respond to news surprises. The results show that the spot rates provide more price discovery than do the CME futures rates overall; however, the contribution of the futures rates to price discovery increases in the time surrounding macroeconomic announcement releases.",

keywords = "Electronic Broking Services (EBS), Macroeconomic announcements, Price discovery",

author = "Chen, {Yu Lun} and Gau, {Yin Feng}",

note = "Funding Information: We are grateful to the editor, Ike Mathur, an anonymous referee, Yuanchen Chang, Michael Chng, Ray Chou, Robin Chou, Mingshu Hua, Chien-Fu Lin, and seminar participants at the 2008 Far Eastern Meeting of Econometrics Society and the 2008 Conference on the Theories and Practices of the Security and Financial Markets for valuable comments and suggestions. We thank the ICAP for providing the EBS data, the Institute for Financial Markets for providing the futures price data, and National Science Council for the research grant ( NSC97-2410-H-008-061 ).",

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AU - Gau, Yin Feng

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N2 - This paper studies competition in price discovery between spot and futures rates for the EUR-USD and JPY-USD markets around scheduled macroeconomic announcements. Using both the information shares approach and the common factor component weight approach for futures prices from the Chicago Mercantile Exchange (CME), as well as deal prices from spot trading on the Electronic Broking Services (EBS), we gauge how foreign exchange spot and futures markets respond to news surprises. The results show that the spot rates provide more price discovery than do the CME futures rates overall; however, the contribution of the futures rates to price discovery increases in the time surrounding macroeconomic announcement releases.

AB - This paper studies competition in price discovery between spot and futures rates for the EUR-USD and JPY-USD markets around scheduled macroeconomic announcements. Using both the information shares approach and the common factor component weight approach for futures prices from the Chicago Mercantile Exchange (CME), as well as deal prices from spot trading on the Electronic Broking Services (EBS), we gauge how foreign exchange spot and futures markets respond to news surprises. The results show that the spot rates provide more price discovery than do the CME futures rates overall; however, the contribution of the futures rates to price discovery increases in the time surrounding macroeconomic announcement releases.

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News announcements and price discovery in foreign exchange spot and futures markets

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Keywords

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