NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

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

NBER Working Paper No. 8959
Issued in May 2002
NBER Program(s):   AP   IFM

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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Document Object Identifier (DOI): 10.3386/w8959

Published: 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. citation courtesy of

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