Does FOMC News Increase Global FX Trading?
38 Pages Posted: 8 Mar 2008
Date Written: February 2008
Does global currency volume increase on days when the Federal Open Market Committee (FOMC) meets? To test the hypothesis of excess currency volume on or around 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 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. We interpret the evidence of excess FX trading on FOMC days to be inconsistent with standard models of homogenous agents.
Keywords: Trading volume, FOMC, Global linkages
JEL Classification: F31, G12
Suggested Citation: Suggested Citation