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Macroeconomic announcements and price discovery in the foreign exchange market

Yin-Feng Gau () and Zhen-Xing Wu

Journal of International Money and Finance, 2017, vol. 79, issue C, 232-254

Abstract: This study shows that the dominance of the overlapping trading hours of London and New York in the price discovery of the EUR/USD and USD/JPY markets only applies on days with U.S. announcements. Different from Cai et al. (2008) and Wang and Yang (2011), we highlight the informational advantage of local traders at the arrival of macroeconomic announcements in the local market, and find that macroeconomic announcements affect the pattern of price discovery across different markets, consistent with Chen and Gau (2010) and Jiang et al. (2012). We also examine changes in information shares before and after the announcement. A significant increase in price discovery before the announcement suggests the possibility of information leakage, while enhanced price discovery efficacy after the announcement suggests that prices gradually adjust to new information, not just immediately respond to the arrival of announcements.

Keywords: Price discovery; Realized variance; Macroeconomic announcements; Foreign exchange market; Electronic Broking Services (EBS) (search for similar items in EconPapers)
JEL-codes: F31 G14 G15 (search for similar items in EconPapers)
Date: 2017
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