Macroeconomic announcements and price discovery in the foreign exchange market

• Published in: Journal of international money and finance Vol. 79; pp. 232 - 254
• Main Authors: Gau, Yin-Feng, Wu, Zhen-Xing
• Format: Journal Article
• Language: English
• Published: Elsevier Ltd 01.12.2017
• Subjects: Electronic Broking Services (EBS); Foreign exchange market; Macroeconomic announcements; Price discovery; Realized variance; F31; Electronic Broking Services (EBS); Macroeconomic announcements; G15; Foreign exchange market; G14; Price discovery; Realized variance
• ISSN: 0261-5606; 1873-0639
• DOI: 10.1016/j.jimonfin.2017.08.006

•We study the price discovery across sequential trading hours in the foreign exchange market.•We examine the price discovery around macroeconomic announcements in the USD/JPY and EUR/USD markets.•We find the trading in the overlapping hours of London and New York dominates the price discovery. 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.