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Efficiency in Information Processing: A Study of Non-Nearby Currency Futures and Relationships with Nearby Counterparts

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  • Chen, Kim Heng
  • Han, Li-Ming
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    Abstract

    This paper provides a comprehensive analysis of the responses of non-nearby Japanese yen and Deutsche mark futures contracts to macroeconomic announcements and the efficiency of information flow between the nearby and non-nearby contracts. The results show that macroeconomic announcements affect the non-nearby futures returns more through their effects on interest rate differentials than through the underlying spot exchange rates. Information flows efficiently between the Deutsche mark nearby and non-nearby contracts, while information flows primarily from the Japanese yen nearby contracts to the non-nearby counterparts.

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    File URL: http://purl.umn.edu/50279
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    Bibliographic Info

    Article provided by Review of Applied Economics in its journal Review of Applied Economics.

    Volume (Year): 2 (2006)
    Issue (Month): 1 ()
    Pages:

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    Handle: RePEc:ags:reapec:50279

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    Web page: http://www.lincoln.ac.nz/story11874.html

    Related research

    Keywords: nearby and non-nearby currency futures contracts; macroeconomic announcement; information and liquidity trading; Financial Economics; C32; G14;

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    References

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    1. Michael J. Fleming & Eli M. Remolona, 1997. "What moves the bond market?," Research Paper 9706, Federal Reserve Bank of New York.
    2. Andersen, Torben G. & Bollerslev, Tim, 1997. "Intraday periodicity and volatility persistence in financial markets," Journal of Empirical Finance, Elsevier, vol. 4(2-3), pages 115-158, June.
    3. Balduzzi, Pierluigi & Elton, Edwin J. & Green, T. Clifton, 2001. "Economic News and Bond Prices: Evidence from the U.S. Treasury Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 36(04), pages 523-543, December.
    4. Ederington, Louis H & Lee, Jae Ha, 1993. " How Markets Process Information: News Releases and Volatility," Journal of Finance, American Finance Association, vol. 48(4), pages 1161-91, September.
    5. Engle, Robert F, 1998. "Macroeconomic Announcements and Volatility of Treasury Futures," University of California at San Diego, Economics Working Paper Series qt7rd4g3bk, Department of Economics, UC San Diego.
    6. Michael J. Fleming & Eli M. Remolona, 1999. "Price Formation and Liquidity in the U.S. Treasury Market: The Response to Public Information," Journal of Finance, American Finance Association, vol. 54(5), pages 1901-1915, October.
    7. Anat R. Admati, Paul Pfleiderer, 1988. "A Theory of Intraday Patterns: Volume and Price Variability," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 3-40.
    8. Christie-David, Rohan & Chaudhry, Mukesh, 1999. "Liquidity and Maturity Effects around News Releases," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 22(1), pages 47-67, Spring.
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