economic news exchange rates and interest rates the paper esamines the post october 1979 response of exchange rates and interest rates to the new information contained in the first announcement of fifteen us macroeconomic series illarkets respond primarily to monetary news but also to news about the trade deficit domestic inflation and variables that reflect the state of the business cycle for all fifteen macroeconomic variables an increase decrease in interest rates is accompanied by an appreciation depreciation of the dollar which is consistent with models that stress price rigidity and absence of purchasing power parity the effect of economic news on asset prices has received increasing attention in the economic literature because an outcome of the efficient markets rational expectations hypothesis is that flesible asset prices change the moment new information about future fundamentals arrives in the market in the exchange rate literature the role of news has gained importance because structural models have failed to predict most of the variation in exchange rates during the 1970s see imeese and rogoff 1983 researchers were naturally led to investigate the types of news that make exchange rates so volatile and to utilize news in order to test which model of exchange rate determination is consistent with the floating eschange rate experience notable studies are those of dornbusch 1980 frenkel 1981 edwards 1982a b 1983 copeland 1984 and rose 1984 in this paper i also examine the effects of macroeconomic news on eschange rates but i adopt a different more direct strategy one that complements previous work avoids some of its shortcomings and promises interesting conclusions i examine the instantaneous response of exchange rates the moment a piece of economic news hits the market if one can isolate the exact time during a business day when news arrives it is straightforward to examine the response of exchange rates because financial data are continuously available the advantages of the present methodology are many first it is possible to identify the exact types of economic news and how they affect exchange rates second the simultaneity bias which plagues the previous literature on exchange rates and news is not present here the independent variables that represent news can be interpreted as causal the paper was presented at the 1985 meeting ofthe american economic association the author wishes to thank sebastian edwards r w hafer nicholas karamouzis andrew rose and two anonymous referees for helpful comments kim rupert of the money market services for providing the survey data soo kounne for able research assistance and barnard college for research support

continuity and reversal in oil spot price movements abstract the hypothesis that prices follow a random walk is tested using daily data for 1978 1984 on the rotterdam spot gas oil market the method uses a filter test statistic to evaluate possible dependencies between successive price changes in the movement domain the results show a significant tendency for small price changes to persist but for reversal to be exhibited for larger price changes it is shown that this dependency can be exploited in a very profitable trading rule the hypothesis that the gas oil market is efficient is rejected this is attributed to the relative immaturity of oil spot markets

international interest rates and us monetary policy announcements evidence from hong kong and singapore this paper investigates the responses of market interest rates to us monetary policy announcements for the us and two emerging economies hong kong and singapore which are similar on many respects but have experienced opposite exchange rate regimes in the last twenty years our results based on market expectations extracted from federal fund futures rates document that fomc announcements significantly affect the term structure of interest rate in the us and both asian countries further international interest rate differentials around fomc meeting dates tend to be negative for short maturities with the impact gradually dissipating as bond maturity increases finally for the case of singapore we find that domestic interest rates react to both external and domestic monetary policy announcements with a magnitude that is larger over the full bond maturity spectrum for domestic announcements these results are robust to time varying futures risk premia and alternative measures of interest rates expectations

round the clock market efficiency and home bias evidence from the international japanese government bonds futures markets abstract this paper examines how information is processed between almost identical international futures markets london liffe and tokyo tse jgb futures in these markets variations in open to open changes are virtually the same as those of close to close changes suggesting that information is transmitted efficiently across markets with small opening pricing errors the overall results confirm market efficiency around the clock yet the intraday u shaped patterns in volume volatility of the london jgb futures suggest home bias in international investments indicating a less global view of trading than expected specifically at the liffe open london investors rush to rebalance portfolios instead of doing so at the tse close which is only one hour before the liffe opens

tests of the random walk hypothesis against a price trend hypothesis forecasts of financial prices calculated from the present and past values are never substantially more accurate than the prediction that future prices will equal the most recently observed price this conclusion has been summarized by two hypotheses first the random walk hypothesis states that daily returns are uncorrelated few people believe that this is exactly correct indeed the hypothesis has been refuted both for small stock markets 13 and for american commodity futures markets 3 second the weak form efficient market hypothesis as defined by jensen 15 states that investors cannot make profits from any correlation between returns after deducting all the costs of trading and adjusting for risk strict efficiency is a special case that occurs when prices fully reflect all information available in the past prices 7 8

response of hourly stock prices and trading volume to economic news this paper examines hourly stock returns and trading volume response to announcements about the money supply consumer price index cpi producer price index industrial production and the unemployment rate the empirical results indicate that surprises in announcements about money supply and cpi are significantly associated with stock price changes the announcements of the other three variables do not affect stock prices significantly trading volume is not affected by any of the five economic variable announcements indicating that market participants do not differ substanti ally in the interpretations of the effects of announcements the spee d of adjustment analysis indicates that the effect of information on stock prices is reflected in a short period of one hour or so copyright 1988 by the university of chicago

domestic macroeconomic news and foreign interest rates abstract this study examines the impact of us and uk news on futures prices of us uk german and japanese government bonds we find that certain us information has a significant influence on german japanese and british interest rates while uk information has almost no effect on foreign rates second we examine the foreign term structure to investigate whether the importance of us information arises because it either signals common world wide shocks or induces an anticipated exchange rate stabilization by foreign central banks the evidence is mixed except for the us cpi surprise which appears to provide information about a common world wide shock g15

the effects of inflation and money supply announcements on interest rates this paper examines the impact of the money supply and inflation rate announcements on interest rates survey data on expectations of the money supply and consumer and producer price indexes are used to distinguish anticipated and unanticipated components of the announcements this distinction is used to test for the efficiency of the financial market response to the announcements of new information the results indicate that the unanticipated components of the announced changes in the producers price index and in the money supply have an immediate positive effect on short term interest rates the consumer price index announcement has no apparent effect there is no evidence of a delayed announcement effect however there is some indication of a liquidity effect of the money supply change on interest rates this takes place when reserves are changing and several weeks prior to the information announcement the effect of money supply announcements on interest rates has attracted considerable attention in both the academic literature and the financial press in the last few years it has been firmly established that unanticipated increases in the money supply lead to immediate increases in interest rates however there are several competing explanations for this phenomenon in the literature in this paper we present some additional empirical evidence which helps to distinguish between two of these hypotheses the policy anticipations and inflationary expectations hypotheses by examining the effect of money supply and inflation announcements on interest rates the positive effect on interest rates of announcements of unanticipated increases in the money supply was demonstrated by urich and wachtel 9 grossman 3 and roley 5 the announcement effect was interpreted in our earlier paper as a policy anticipations effect and has been interpreted by others e g cornell 1 as an inflationary expectations effect since both effects are in the same direction it is difficult to distinguish between them without additional evidence the policy anticipations effect is simply that an unanticipated increase in the money supply causes financial market participants to expect that the federal reserve will tighten the monetary reins in order to offset the increase in anticipation of future tightening there is a tendency for interest rates to increase the inflationary expectations effect is that an unanticipated increase

shock effects on stocks bonds and exchange rates abstract tick data and newswire searches are used to find events that led to large and rapid price changes in a stock future a bond future and three exchange rate futures knowledge of these events may be useful in future work they have the advantages that they are truly surprises and that the sign of their effect on each financial instrument is known the events are used in this study to analyze the effects of three types of events monetary price and real on the five instruments

the impact of news on financial markets in the united kingdom note a number of papers see e g cornell 1983 and the references contained therein have appeared in the united states recently that examine the impact of money supply announcements on financial asset prices using the framework of the efficient markets hypothesis these studies indicate that for the united states unanticipated increases in m1 push interest rates and the exchange rate upward and place downward pressure on stock exchange prices a feature common to all these papers is that they utilize expectations data which are derived from surveying market participants rather than from a model such as an arima model in an earlier paper smith and goodhart 1985 we set out to compare the reaction of market prices to announcements made both in the united states and in the united kingdom using the dollar sterling exchange rate a price which by definition is common to both countries we found the impact of money announcements m1 in the united states and m3 in the united kingdom to be remarkably similar in magnitude however when we considered the time taken for the effect to be observed the results differed considerably whereas the u s announcement appeared to affect the exchange rate immediately the impact from the u k announcement was not felt fully until the following working day the aim of this paper is to build on these earlier results for the united kingdom this is done by considering four different financial prices along with four different announcements to ascertain the extent to which each market reacts to each announcement because we are interested not only in the magnitude of any announcement effects but also in the time taken for these effects to be fully realized the equations are estimated with the changes in the various financial prices measured over a number of alternative intervals

lessons for international asset allocation on the positive side and despite rumors to the contrary there is little evidence that either stock or bond markets have become more volatile worldwide second correlations between markets remain low on the negative side however correlations do appear to increase when market volatility increases that is just when the diversification potential offered by low correlations is most needed furthernore while currency risk remains a small although signifcant component of total equity risk its contribution to fixedincome risk appears to be increasing

trade balance news and exchange rates is there a policy signal abstract contrary to earlier studies surprisingly large us trade deficits are shown to have a significant effect on exchange rates throughout the 1980s three possible reasons for the time varying effect are considered the evidence presented yields the following inference deficit news is likely to have changed expectations of fed intervention that moved exchange rates deficit news probably has an effect on revisions of future deficit expectations and exchange rates change as a result and deficit news may change expectations regarding us trade policy that is reflected in exchange rates

the behaviour of futures prices over time 1985 the behaviour of futures prices over time applied economics vol 17 no 4 pp 713 734

market perceptions of federal reserve policy and the weekly monetary announcements abstract in october 1979 the federal reserve altered its operating procedures emphasizing control of the growth rate of the money stock was the fed able to gain credibility in the market the paper investigates this question by examining the reactions of spot and expected future exchange rates foreign interest rates and long run domestic forward interest rates to the weekly federal reserve announcements of m l both before and after october 1979 the empirical evidence points out that the fed did gain credibility but was unable to establish full credibility the market reactions are consistent with the hypothesis that market participants attached a positive probability to the event that the fed may at some point in the future abandon its money stock targets

balance of trade announcements and asset prices influence on equity prices exchange rates and interest rates abstract this paper examines the informational impact of traded balance announcements on asset prices including equities currrencies long and short term debt instruments and financial futures this study finds that in the 1980s prior to the 1985 plaza agreement for international economic cooperation information in trade balance announcements seem to have influenced only interest rates however in the 1985 1987 period such announcements also influenced stock prices and currency values these influences intensity further in the 1987 1988 period thus asset prices are sensitive to news in trade balance announcements and this sensitivity seems to have increased significantly in recent years with important implications for asset pricing models and economic policy formulation jel f30

variation in price dependency measures on the london metal exchange eight tests of dependency are conducted on london metal exchange price date for separate years between 1972 and 1982 the results from the eight tests are combined to produce an overall ranking of the years by the extent of dependency exhibited similar patterns are exhibited across all the contracts tested this is attributed to a common factor affecting all markets the use of commodities as an inflation shelter by nontrade investors is suggested as a possible explanation

a model of the threat of counterfeiting abstract a simple matching model of money with the potential for counterfeiting is constructed in contrast to the existing literature lotteries are included these provide scope for the operation of the intuitive criterion of cho and kreps the application of that refinement is shown to imply that there is no equilibrium with counterfeiting if the cost of producing counterfeits is low enough then there is no monetary equilibrium otherwise there is a monetary equilibrium without counterfeiting in other words the threat of counterfeiting can eliminate the monetary equilibrium

economic news and intraday volatility in international bond markets kent g becker assistant professor of finance school of business and management temple university joseph e finnerty professor of finance college of commerce and business administration university of illinois at urbana champaign and kenneth j kopecky walter d and mae s fuller professor of economics and associate professor of finance school of business and management temple university

money supply announcements and market reactions in an open economy an open economy model of the money supply announcement financial market reaction phenomenon under policy anticipations is formulated whose major divergence from earlier models is the prediction that short term interest rate movements need not be positively correlated with unexpectedly high monetary growth while at variance with the most consistent empirical regularity in the united states this prediction in fact accords with previous empirical findings for both the united kingdom and canada copyright 1990 by ohio state university press

news from the u s and japan which moves the yen dollar exchange rate abstract intra daily movements in the yen dollar exchange rate are examined in four non overlapping segments within each business day from january 1980 to september 1985 the results indicate that the dollar tended to appreciate in the new york segment and depreciate in the european segment in three of the four subsamples considered the tokyo segment made virtually no contribution to annual yen dollar rate movements the volatility of the exchange rate also differed across markets finally in examining the relative effects of news from the u s and japan explicitly u s money announcement surprises had the most consistent effects