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Jumps in equilibrium prices and asymmetric news in foreign exchange markets

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  • Remzi Uctum

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Imane El Ouadghiri

Abstract

In this paper we examine the intraday effects of surprises from scheduled macroeconomic announcements and unscheduled event news on six major exchange rate excess returns (jumps) using a Tobit model with conditionally heteroskedastic errors that we extend so as to account for asymmetries. Besides this novel model, our approach embodies several important features: we perform Lee and Mykland's (2012) non-parametric test procedure to filter out microstructure noise from observed exchange rates and extract jumps as the significant "equilibrium" returns; various categories of information news from different geographical regions are exploited; the hypothesis of a leverage effect on foreign exchange jumps due to asymmetric volatility shocks is examined. We found that the most influential scheduled macroeconomic news are globally related to the US job markets, output growth indicators and public debt, whereas significant event news include announcements of bank failures and government rescue plans. Surprises impact Forex jumps for about one third as a result of rather pessimistic forecasts due to the crisis period analyzed. For most of the currencies the hypothesis that negative volatility shocks have a-greater impact on volatility than positive shocks of the same magnitude is validated, reflecting markets' concern about the costs implied by central bank's stabilization policies. Our findings provide evidence that the major foreign exchange markets are not efficient
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  • Remzi Uctum & Imane El Ouadghiri, 2015. "Jumps in equilibrium prices and asymmetric news in foreign exchange markets," Post-Print hal-01638221, HAL.
    • Handle: RePEc:hal:journl:hal-01638221
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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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