Working Paper: CEPR ID: DP6753
Authors: Andreas M. Fischer; Angelo Ranaldo
Abstract: Does global currency volume increase on days when the Federal Open Market Committee (FOMC) meets? To test the hypothesis of excess currency volume on FOMC days, we use a novel data set from the Continuous Linked Settlement (CLS) Bank. The CLS measure captures roughly half of the global trading volume in foreign exchange (FX) markets. We find strong evidence that trading volume increases in the order of 5% across currency areas on FOMC days during 2003 to 2007. This result holds irrespective of the size of price changes in currency markets and FOMC policy shocks. The new evidence of excess FX trading on FOMC days is inconsistent with standard models of the asset market approach with homogenous agents.
Keywords: FOMC; Global Linkages; Trading Volume
JEL Codes: F31; G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| FOMC meetings (E52) | increase in global foreign exchange (FX) trading volume (G15) |
| FOMC meetings (E52) | FX trading volume response occurs consistently regardless of price changes or policy surprises (G15) |
| FOMC meetings (E52) | excess trading volume indicative of abnormal portfolio reshuffling (G14) |
| FOMC meetings (E52) | FX trading volume response with a two-day lag (G15) |