Investors and analysts frequently use financial market prices in their attempts to divine market expectations--a difficult exercise because of the myriad influences on financial market prices. This article focuses on shifts in market outlook regarding the direction of interest rate movements since 1988 as well as market reaction to specific events influencing interest rate changes in the short run--namely, Federal Reserve monetary policy and its periodic Federal Open Market Committee meetings. ; The discussion examines the Eurodollar futures options traded at the Chicago Mercantile Exchange and explains how to infer the implied skewness of interest rates--a measure that gauges the direction and magnitude of their movements--from these options. In particular, this article shows how the skewness of the distribution of a short-term interest rate, LIBOR, can be inferred from market prices. ; The basic conclusion of this article is that a marked shift in market outlook on interest rate movements occurred in late 1992. The analysis finds that during 1993 and 1994, skewness was manifest by a premium in the prices of Eurodollar futures puts, which offer protection against rising interest rates, compared with those of Eurodollar futures calls. The findings also indicate, though, that the Eurodollar futures options prices are too noisy to detect changes in the markets' view of future short-term interest rate movements following FOMC meetings.
Download Info
To our knowledge, this item is not available for
download. To find whether it is available, there are three
options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page
whether it is in fact available.
3. Perform a search for a similarly titled item that would be
available.
Publisher Info
Article provided by Federal Reserve Bank of Atlanta in its journal Economic Review.
Volume (Year): (1995) Issue (Month): Mar () Pages: 10-30 Download reference. The following formats are available: HTML,
plain text,
BibTeX,
RIS (EndNote),
ReDIF
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)