International Finance Discussion Papers (IFDP)
May 2009
The Impact of Macroeconomic Announcements on Real Time Foreign Exchange Rates in Emerging Markets
Fang Cai, Hyunsoo Joo, and Zhiwei Zhang
Abstract:
This paper utilizes a unique high-frequency database to measure how exchange rates in nine emerging markets react to macroeconomic news in the U.S. and domestic economies from 2000 to 2006. We find that major U.S. macroeconomic news have a strong impact on the returns and volatilities of emerging market exchange rates, but many domestic news do not. Emerging market currencies have become more sensitive to U.S. news in recent years. We also find that market sentiment could sway the impact of news on these currencies systematically, as good (bad) news seems to matter more when optimism (pessimism) prevails. Market uncertainty also interacts with macroeconomic news in a statistically significant way, but its role varies across currencies and news.
Full paper (screen reader version)Keywords: Exchange rate, emerging market, macroeconomic news, high-frequency data
PDF: Full Paper
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