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Risk–return relationships in foreign‐currency futures following macroeconomic announcements
Author(s) -
Han LiMing,
Ozocak Onem
Publication year - 2002
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.10030
Subject(s) - autoregressive conditional heteroskedasticity , currency , futures contract , economics , financial economics , econometrics , monetary economics , autoregressive model , risk–return spectrum , volatility (finance) , portfolio
This study uses the tick data for foreign‐currency futures to examine risk–return relationships onmacroeconomic announcements. This study—different from previous studies—examines the risk–returnrelationship by capturing the announcement effect on returns with announcement surprises and on volatilities withannouncement dummies simultaneously in a Generalized Autoregressive Conditional Heteroskedasticity(GARCH) model. Strong risk–return relationships are detected for the first min after theannouncements. Furthermore, the return–risk tradeoff ratios differ across currencies and acrossmacroeconomic indicators. The same information can be more profitable when acted on the more liquid currencyfutures. © 2002 Wiley Periodicals, Inc. Jrl Fut Mark 22: 729–764, 2002