THE IMPACT OF U.S. MONEY SUPPLY ANNOUNCEMENTS ON FOREIGN EXCHANGE MARKETS: AN EVENT STUDY APPROACH

LeRoy D. Brooks and Chuck C.Y. Kwok

This paper demonstrates how event study, a widely used methodology in the common stock market, may be applied to the foreign exchange market. The events chosen for the demonstration are the announcements of U.S. money supply. The test results generally confirm those findings reported in earlier multiple regression studies. When there are positive money announcement surprises, the dollar generally appreciates against most of the commonly traded currencies. When the event window is widened to include days -1 and +1, the standardized prediction errors of some currencies are significantly different from zero, indicating that significant abnormal profits may have been historically achievable by trading the appropriate currencies around the days of U.S. money supply announcements.