Daily Changes in Fed Funds Futures PricesJournal of Money, Credit and Banking, 2009, vol. 41, issue 4, pages 567-582 Abstract: This paper explores the properties of daily changes in the prices for near-term fed funds futures contracts. The paper finds these contracts to be excellent predictors of the fed funds rate, and shows that the claim of a nonzero term premium in the short-horizon contracts is more sensitive to outliers than previous research appears to have recognized. I find some statistically significant evidence of serial correlation in the daily changes, but this accounts for only a tiny part of the 1-day movements and there is essentially zero predictability for horizons longer than 1 day. Settlement futures prices for each day appear to incorporate the information embodied in that day's term structure of longer-horizon Treasury securities. Previous employment growth makes a statistically significant contribution to predicting futures price changes, though again this could only account for a tiny part of the daily variance. The paper concludes that futures prices provide a very useful measure of the daily changes in the market's expectation of near-term changes in Fed policy. Copyright (c) 2009 The Ohio State University. Date: 2009 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: http://EconPapers.repec.org/RePEc:mcb:jmoncb:v:41:y:2009:i:4:p:567-582 Access Statistics for this article Journal of Money, Credit and Banking is edited by Pok-Sang Lam, Deborah Lucas, Masao Ogaki and Kenneth D. West More articles in Journal of Money, Credit and Banking from Blackwell Publishing |
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