Us macroeconomic news announcements effect on emerging markets currencies daily movements
Joukama, Kasper (2016)
2016
Kuvaus
Opinnäytetyö kokotekstinä PDF-muodossa.
Tiivistelmä
Forecasting exchange rates has fascinated economists for decades, but still there has not been one significant breakthrough. Traditional models based on macroeconomic fundamentals have received less attention in recent years. Exchange rates daily movements have been explained with multiple factors, but according to exchange rate theory, only new information is relevant. In theory all information that exists, should already include in price, but in reality it is not the case due information asymmetry.
The empirical part studies how US macroeconomic news announcements influence to the most traded emerging market currencies in relation to US dollar (USD). Data used in this study consist of daily changes in emerging country’s currency/USD (dependent variable). News announcements (independent variable) that are used in this study have been used in previous studies. They are also considered to have significant impact on currencies movements according to previous studies such as Ehrmann & Fratzscher (2005). Both currency and news announcement data is collected from a six-year time period. To study the effect of currency movements the surprise factor of the news is tested by comparing the predicted outcome and the actual outcome of the news announcement.
Results in this study show that macroeconomic news do have some impact when explaining emerging market foreign exchange movements, but the effect is not as significant as EUR/USD has had in previous studies. News from US tends not to even strengthen USD significantly against emerging markets currencies in the same way. Some individual news announcements had a little impact on currency developments. All in all, it can be said that US macro-economic releases did not explain the daily movements between emerging market currencies and US dollar during the testing period.
The empirical part studies how US macroeconomic news announcements influence to the most traded emerging market currencies in relation to US dollar (USD). Data used in this study consist of daily changes in emerging country’s currency/USD (dependent variable). News announcements (independent variable) that are used in this study have been used in previous studies. They are also considered to have significant impact on currencies movements according to previous studies such as Ehrmann & Fratzscher (2005). Both currency and news announcement data is collected from a six-year time period. To study the effect of currency movements the surprise factor of the news is tested by comparing the predicted outcome and the actual outcome of the news announcement.
Results in this study show that macroeconomic news do have some impact when explaining emerging market foreign exchange movements, but the effect is not as significant as EUR/USD has had in previous studies. News from US tends not to even strengthen USD significantly against emerging markets currencies in the same way. Some individual news announcements had a little impact on currency developments. All in all, it can be said that US macro-economic releases did not explain the daily movements between emerging market currencies and US dollar during the testing period.