News announcements and price discovery in foreign exchange spot and futures markets

Chen, Yu‐Lun; Gau, Yin‐Feng

doi:10.1016/j.jbankfin.2010.03.009

Cited by 161 publications

(118 citation statements)

References 29 publications

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“…Most of the recent studies have used common factor methods (CS and IS methods) to examine the price discovery process (Chen and Gau, 2010;Fricke and Menkhoff, 2011;Frijns et al, 2015aFrijns et al, , 2015bLien and Shrestha, 2014;Narayan et al, 2014). These methods have been discussed and compared in a detailed manner in Baillie et al (2002), Putniņš (2013), and (Narayan and Smyth, 2015).…”

Section: Literature Reviewmentioning

confidence: 99%

Price discovery in Indian stock index futures market: new evidence based on intraday data

Inani

2017

IJICBM

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This study revisits price discovery process in Indian stock index futures market for spot and futures of S&P CNX Nifty, by using high-frequency one-minute time-interval data for the period from January 2011 to August 2015 to gain fresh insights. Stationarity and cointegration tests reveal that spot and futures prices are I (1) and cointegrated. Three different econometric methodologies -component share method of Gonzalo and Granger (1995), information share method of Hasbrouck (1995), and modified information share of Lien and Shrestha (2009) have been employed to determine the extent of price discovery contribution by spot and futures markets. The results reveal that futures market is performing its price discovery function which satisfies the transaction cost hypothesis. Also, these results support the notion that futures market is more efficient vis-à-vis spot market in India. Price discovery is a main function of futures market and has implications for asset pricing, portfolio allocation, investment strategy formation, and market efficiency. This study might be helpful for regulators and policymakers to form market structure policies and guidelines for equity markets.

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Section: Literature Reviewmentioning

confidence: 99%

Price discovery in Indian stock index futures market: new evidence based on intraday data

Inani

2017

IJICBM

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“…Finally, we consider the indirect effect of news through the value of risk reversals on the yen carry trade, using (non-commercial) open interest positions in future markets as a proxy for carry trade activity. The investigation of the link between macroeconomic news and futures positions through the risk-reversals channel may provide an explanation, based on carry trade activity, of the finding by Chen and Gau (2010) that the contribution of futures prices to overall price discovery in foreign exchange markets increases markedly around the times of macroeconomic announcements.…”

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confidence: 99%

Impact of macro-economic surprises on carry trade activity

Hutchison

Sushko

2013

Journal of Banking & Finance

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract This paper investigates market perceptions of the risk of large exchange rate movements by using information gleaned from risk reversal contracts and macroeconomic news surprises. We focus on the height of the carry trade period in Japan (March 2004 through December 2006). Concerns about sharp yen appreciation were particularly evident during the period of heavy carry trade activity and are more likely to show up in the price of risk. We focus on "big" news surprises that are more likely to convey information about the risk of large changes in the exchange rate, consider a broad set of news, and investigate the direct impact of news on the value of dollar yen risk reversals. We also consider the effect of the value of risk reversals on the yen carry trade, using (non-commercial) open interest positions in futures markets as a proxy for carry trade activity. Overall, we find that macroeconomic news is an important determinant of risk reversals during periods of heavy carry trade volume, particularly when the cost of hedging against large yen appreciation is increasing. Moreover, there is a close link between risk reversals and non-commercial futures positions. We calculate a substantial effect of macroeconomic news on carry trade activity, with risk reversals (the cost of hedging) as the transmission mechanism. Terms of use: Documents inJEL classification: C22, F31, G14

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“…The model can be express as: From equations (3) and (4), we test the null hypothesis H 0 : δ 1 = 0, that change in spot price does not causes change in futures price in the short run, whereas, H 0 : δ 2 = 0, that change in futures price does not causes change in spot price in the short run. The ratio of the error correction terms can also be use to estimate the contribution of spot and futures markets in price discovery because it shows the magnitude at which the prices adjust to the long run equilibrium position (see Cabrera et al, 2009;Schlusche, 2009;Chen and Gau, 2010). If α s is insignificant and α f is positive and significant the spot market lead price discovery, whereas, if α f is insignificant and α s is negative and significant the futures market leads in price discovery in the long run.…”

Section: Methodsmentioning

confidence: 99%

Price discovery and risk transfer in the Brent crude oil futures market

Abdullahi

Muhammad

2016

IJFMD

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This paper examines price discovery and risk transfer functions in the Brent crude oil futures market. The results show that the spot and futures prices play a significant role in price discovery but the contribution of futures price are higher at different maturities. Second, the results of cross-contract analysis indicate that futures contract with longer maturity lead price discovery in the oil market. Finally, the crude oil futures price does not perform the risk transfer function in interaction with the spot price in various maturities and between different futures contracts. The findings have important implications for market participants and policy makers.

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News announcements and price discovery in foreign exchange spot and futures markets

Cited by 161 publications

References 29 publications

Price discovery in Indian stock index futures market: new evidence based on intraday data

Price discovery in Indian stock index futures market: new evidence based on intraday data

Impact of macro-economic surprises on carry trade activity

Price discovery and risk transfer in the Brent crude oil futures market

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