Informed trading in foreign exchange futures: Payroll news timing

Abstract

This paper studies informed trading about U.S. payrolls in the foreign exchange (FX) futures market. I find that speculators such as hedge funds are more likely to be sellers than buyers of FX futures ahead of good U.S. payroll news and thus appear to have earned significant gains around payroll announcements. In contrast, hedgers—in particular, dealers—appear to have provided liquidity to speculators. I show that mimicking speculators’ FX exposures around payroll announcements can add a large economic gain to various reference portfolios. My analysis also uncovers that information in FX trading is long-lived and differs along the U.S. business cycle.