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Does FOMC News Increase Global FX Trading?

Author

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  • Fischer, Andreas
  • Ranaldo, Angelo
Abstract
Does global currency volume increase on days when the Federal Open Market Committee (FOMC) meets? To test the hypothesis of excess currency volume on FOMC days, we use a novel data set from the Continuous Linked Settlement (CLS) Bank. The CLS measure captures roughly half of the global trading volume in foreign exchange (FX) markets. We find strong evidence that trading volume increases in the order of 5% across currency areas on FOMC days during 2003 to 2007. This result holds irrespective of the size of price changes in currency markets and FOMC policy shocks. The new evidence of excess FX trading on FOMC days is inconsistent with standard models of the asset market approach with homogenous agents.

Suggested Citation

  • Fischer, Andreas & Ranaldo, Angelo, 2008. "Does FOMC News Increase Global FX Trading?," CEPR Discussion Papers 6753, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:6753
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    3. Ranaldo, Angelo & Somogyi, Fabricius, 2021. "Asymmetric information risk in FX markets," Journal of Financial Economics, Elsevier, vol. 140(2), pages 391-411.
    4. Nkwoma, Inekwe John, 2017. "Futures-Based Measures Of Monetary Policy And Jump Risk," Macroeconomic Dynamics, Cambridge University Press, vol. 21(2), pages 384-405, March.
    5. Beckmann, Joscha & Czudaj, Robert L., 2023. "Perceived monetary policy uncertainty," Journal of International Money and Finance, Elsevier, vol. 130(C).
    6. Nina Karnaukh & Angelo Ranaldo & Paul Söderlind, 2015. "Understanding FX Liquidity," The Review of Financial Studies, Society for Financial Studies, vol. 28(11), pages 3073-3108.
    7. Carlo Rosa, 2013. "The financial market effect of FOMC minutes," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 67-81.
    8. Sensoy, Ahmet & Serdengeçti, Süleyman, 2019. "Intraday volume-volatility nexus in the FX markets: Evidence from an emerging market," International Review of Financial Analysis, Elsevier, vol. 64(C), pages 1-12.
    9. Huang, Wenqian & Ranaldo, Angelo & Schrimpf, Andreas & Somogyi, Fabricius, 2022. "Constrained Dealers and Market Efficiency," VfS Annual Conference 2022 (Basel): Big Data in Economics 264054, Verein für Socialpolitik / German Economic Association.
    10. Trung Hoang Bao & Cesario Mateus, 2017. "Impact of FOMC announcement on stock price index in Southeast Asian countries," China Finance Review International, Emerald Group Publishing Limited, vol. 7(3), pages 370-386, August.
    11. Ranaldo, Angelo & de Magistris, Paolo Santucci, 2022. "Liquidity in the global currency market," Journal of Financial Economics, Elsevier, vol. 146(3), pages 859-883.
    12. Angelo Ranaldo & Paolo Santucci de Magistris, 2018. "Trading Volume, Illiquidity and Commonalities in FX Markets," Working Papers on Finance 1823, University of St. Gallen, School of Finance, revised Oct 2019.

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    More about this item

    Keywords

    Fomc; Global linkages; Trading volume;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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