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High-Frequency Foreign Exchange Rate Behavior on the Arrival of Macroeconomic News - The Impact of Swedish and U.S. News on USD/SEK Returns

Hjort, Erik LU (2018) NEKH01 20181
Department of Economics
Abstract
This paper studies the high-frequency behavior of the USD/SEK currency pair on the arrival of macroeconomic news emanating from Sweden and the United States. By using exchange rate data sampled at one minute-by-minute quotations and market expectations from the Bloomberg Terminal, the study finds systematic effects of news on exchange rate returns. The majority of news is immediately incorporated into the price of the exchange rate, consistent with the efficient market hypothesis. The reactions of the USD/SEK currency pair to unexpected changes are broadly consistent with the predictions in a central bank reaction function and in a portfolio balance model. Further, the direction in which news push the exchange rate is in general stable... (More)
This paper studies the high-frequency behavior of the USD/SEK currency pair on the arrival of macroeconomic news emanating from Sweden and the United States. By using exchange rate data sampled at one minute-by-minute quotations and market expectations from the Bloomberg Terminal, the study finds systematic effects of news on exchange rate returns. The majority of news is immediately incorporated into the price of the exchange rate, consistent with the efficient market hypothesis. The reactions of the USD/SEK currency pair to unexpected changes are broadly consistent with the predictions in a central bank reaction function and in a portfolio balance model. Further, the direction in which news push the exchange rate is in general stable during the sample period 2008-2018. Finally, some news persists to influence the exchange rate over a twelve-hour horizon when emanating from Sweden, whereas the effect of U.S. news quickly weakens and disappears into the noise in the intraday FX fluctuations. (Less)
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author
Hjort, Erik LU
supervisor
organization
course
NEKH01 20181
year
type
M2 - Bachelor Degree
subject
keywords
Macroeconomic News, Foreign Exchange Rate, High-Frequency Data, Expectations
language
English
id
8938756
date added to LUP
2018-05-04 12:27:26
date last changed
2018-05-04 12:27:26
@misc{8938756,
  abstract     = {This paper studies the high-frequency behavior of the USD/SEK currency pair on the arrival of macroeconomic news emanating from Sweden and the United States. By using exchange rate data sampled at one minute-by-minute quotations and market expectations from the Bloomberg Terminal, the study finds systematic effects of news on exchange rate returns. The majority of news is immediately incorporated into the price of the exchange rate, consistent with the efficient market hypothesis. The reactions of the USD/SEK currency pair to unexpected changes are broadly consistent with the predictions in a central bank reaction function and in a portfolio balance model. Further, the direction in which news push the exchange rate is in general stable during the sample period 2008-2018. Finally, some news persists to influence the exchange rate over a twelve-hour horizon when emanating from Sweden, whereas the effect of U.S. news quickly weakens and disappears into the noise in the intraday FX fluctuations.},
  author       = {Hjort, Erik},
  keyword      = {Macroeconomic News,Foreign Exchange Rate,High-Frequency Data,Expectations},
  language     = {eng},
  note         = {Student Paper},
  title        = {High-Frequency Foreign Exchange Rate Behavior on the Arrival of Macroeconomic News - The Impact of Swedish and U.S. News on USD/SEK Returns},
  year         = {2018},
}