Working Paper: NBER ID: w11041
Authors: Martin D. D. Evans; Richard K. Lyons
Abstract: This paper addresses whether macro news arrivals affect currency markets over time. The null from macro exchange-rate theory is that they do not: macro news is impounded in ex-change rates instantaneously. We test this by examining the effects of news on subsequent trades by end-user participants (such as hedge funds, mutual funds, and non-financial corporations). News arrivals induce subsequent changes in trading in all of the major end-user segments. These induced changes remain significant for days. Induced trades also have persistent effects on prices. Currency markets are not responding to news instantaneously.
Keywords: No keywords provided
JEL Codes: F3; F4; G1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| macro news arrivals (E39) | changes in trading behavior (G40) |
| changes in trading behavior (G40) | price movements (E30) |
| macro news arrivals (E60) | price movements (E30) |
| macro news arrivals (E39) | order flow (C69) |
| order flow (C69) | returns (Y60) |
| order flow (C69) | price movements (E30) |