What Does Futures Market Interest Tell Us about the Macroeconomy and Asset Prices?

Harrison Hong and Motohiro Yogo

No 16712, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Economists have traditionally viewed futures prices as fully informative about future economic activity and asset prices. We argue that open interest could be more informative than futures prices in the presence of hedging demand and limited risk absorption capacity in futures markets. We find that movements in open interest are highly pro-cyclical, correlated with both macroeconomic activity and movements in asset prices. Movements in commodity market interest predict commodity returns, bond returns, and movements in the short rate even after controlling for other known predictors. To a lesser degree, movements in open interest predict returns in currency, bond, and stock markets.

JEL-codes: E31 E37 F31 G12 G13 (search for similar items in EconPapers)
Date: 2011-01
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mic and nep-mon
Note: AP IFM
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Citations: View citations in EconPapers (9)

Published as Hong, Harrison & Yogo, Motohiro, 2012. "What does futures market interest tell us about the macroeconomy and asset prices?," Journal of Financial Economics, Elsevier, vol. 105(3), pages 473-490.

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Journal Article: What does futures market interest tell us about the macroeconomy and asset prices? (2012)
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