Author: Jonathan H. Wright / Topic: Emerging Markets

Author:: Jonathan H. Wright, Alain P. Chaboud, Edward Howorka, David Liu, Sergey Chernenko, and Raj S. Krishnasami Iyer
Publication Date:: 11-2004
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: We introduce a new high-frequency foreign exchange dataset from EBS (Electronic Broking Service) that includes trading volume in the global interdealer spot market, data not previously available to researchers. The data also gives live transactable quotes, rather than the indicative quotes that have been used in most previous high frequency foreign exchange analysis. We describe intraday volume and volatility patterns in euro-dollar and dollar-yen trading. We study the effects of scheduled U.S. macroeconomic data releases, first confirming the finding of recent literature that the conditional mean of the exchange rate responds very quickly to the unexpected component of data releases. We next study the effects of data releases on trading volumes. News releases cause volume to rise, and to remain elevated for a longer period. However, in contrast to the result for the level of the exchange rate, even if the data release is entirely in line with expectations, we find that there is still typically a large pickup in trading volume.
Topic:: Economics, Emerging Markets, and International Trade and Finance
Political Geography:: United States

Author:: Jonathan H. Wright, Sergey V. Chernenko, and Krista B. Schwarz
Publication Date:: 06-2004
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: Forward and futures rates are frequently used as measures of market expectations. In this paper we apply standard forecast efficiency tests, and some newer exact sign and rank tests, to a wide range of forward and futures rates, and in this way test whether these are in fact rational expectations of future actual prices. The forward and futures rates that we study under a common methodology include foreign exchange forward rates, U.S. and foreign interest rate futures and forward rates, oil futures and natural gas futures. For most, but not all, of these instruments, we find that we can reject the hypothesis that the forward or futures rates are rational expectations of actual future prices. It is well known that foreign exchange forward rates give less accurate forecasts than a random walk, but we show that this is also true for some interest rate futures and forward rates. We conclude that forward and futures prices are not generally pure measures of market expectations: they are also heavily affected by the market price of risk.
Topic:: Security, Economics, Emerging Markets, and International Trade and Finance
Political Geography:: United States

Author:: John H. Rogers, Jonathan H. Wright, Jon Faust, and Eric Swanson
Publication Date:: 10-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: This paper proposes a new approach to identifying the effects of monetary policy shocks in an international vector autoregression. Using high-frequency data on the prices of Fed Funds futures contracts, we measure the impact of the surprise component of the FOMC-day Federal Reserve policy decision on financial variables, such as the exchange rate and the foreign interest rate. We show how this information can be used to achieve identification without having to make the usual strong assumption of a recursive ordering.
Topic:: Economics, Emerging Markets, and International Trade and Finance
Political Geography:: United States

Author:: Jonathan H. Wright, Jon Faust, and Eric Swanson
Publication Date:: 02-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: Using the prices of federal funds futures contracts, we measure the impact of the surprise component of Federal Reserve policy decisions on the expected future trajectory of interest rates. We show how this information can be used to identify the effects of a monetary policy shock in a standard monetary policy VAR. This constitutes an alternative approach to identification that is quite different, and, we would argue, more plausible, than the conventional short-run restrictions. We find that the usual recursive identification of the model is rejected, but we nevertheless agree with the literature's conclusion that only a small fraction of the variance of output can be attributed to monetary policy shocks.
Topic:: Economics, Emerging Markets, and International Trade and Finance
Political Geography:: United States

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