Auctions, Announcements, and Abnormal Returns
The paper analyzes how Treasury auction timing before macroeconomic announcements drives anomalous FX returns and intermediation effects.
What it examines
This paper examines how U.S. Treasury auctions preceding macroeconomic announcements affect foreign exchange returns. Using high-frequency data from major currencies, it applies regression models to study dealer intermediation and investor risk, aiming to reveal unique return patterns when safe asset demand shifts across markets.
What it concludes
The research shows that FX returns spike on days when treasury auctions precede macro announcements due to limited dealer intermediation. These insights can aid policymakers and investors in managing currency risk and improving market liquidity, while suggesting further studies on interdealer dynamics.
Evidence objects
A surprising pattern emerges as similar macro announcement days without auctions show no unusual FX returns, emphasizing the unique impact of Treasury auctions on currency movements around key economic events.
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The study reveals that on major U.S. macroeconomic announcement days preceded by Treasury auctions, currencies appreciate by roughly 8 basis points, linking safe asset demand to pronounced FX market behavior.
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Innovative methods using 24 years of high-frequency FX, auction, and macro data via regression and bootstrapping reveal diminished primary dealer participation drives FX drifts before and after announcements in markets.
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Leveraging high-frequency FX data, the paper uncovers a fresh link between U.S. Treasury auctions and abnormal FX market returns on macroeconomic announcement days. Its innovative focus on treasury auctions as a precursor provides novel insights into market dynamics, offering compelling contributions that challenge conventional announcement effect literature in quantitative finance.
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Raw abstract and provenance
- … FX Data. We obtain intraday foreign exchange rate data from LSEG. The sample period … price data on FX quotes, we source information on trading dynamics from LSEG …
Source row: 266 · abstract type: snippet