What does futures market interest tell us about the macroeconomy and asset prices?

Harrison Hong and Motohiro Yogo

Journal of Financial Economics, 2012, vol. 105, issue 3, 473-490

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.

Keywords: Bonds; Business cycle; Commodities; Currencies; Futures market; Inflation (search for similar items in EconPapers)
JEL-codes: E31 E37 F31 G12 G13 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (249)

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Working Paper: What Does Futures Market Interest Tell Us about the Macroeconomy and Asset Prices? (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:105:y:2012:i:3:p:473-490

DOI: 10.1016/j.jfineco.2012.04.005

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