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Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange

  • Torben G. Andersen
  • Tim Bollerslev
  • Francis X. Diebold
  • Clara Vega

Using a new dataset consisting of six years of real-time exchange rate quotations, macroeconomic expectations, and macroeconomic realizations (announcements), we characterize the conditional means of U.S. dollar spot exchange rates versus German Mark, British Pound, Japanese Yen, Swiss Franc, and the Euro. In particular, we find that announcement surprises (that is, divergences between expectations and realizations, or 'news') produce conditional mean jumps; hence high-frequency exchange rate dynamics are linked to fundamentals. The details of the linkage are intriguing and include announcement timing and sign effects. The sign effect refers to the fact that the market reacts to news in an asymmetric fashion: bad news has greater impact than good news, which we relate to recent theoretical work on information processing and price discovery.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8959.

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Date of creation: May 2002
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Publication status: published as Andersen, Torben G., Tim Bollerslev, Francis X. Diebold and Clara Vega. "Micro Effects Of Macro Announcements: Real-Time Price Discovery In Foreign Exchange," American Economic Review, 2003, v93(1,Mar), 38-62.
Handle: RePEc:nbr:nberwo:8959
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