The Impacts of Macroeconomic Surprises on the FX and Equity Markets

We examine the effects of macroeconomic surprises as quantified in the Citigroup Economic Surprise Indexes (CESIs) on the foreign exchange and equity markets of 12 economies, including the Eurozone and emerging markets. We first explore general relationships among economic data surprises, FX rates, and equity prices. We then test the relationships in several types of meaningful or significant surprises, in which we single out days and special cases in which profitable trading strategies are more likely to be feasible. Overall, our results provide insights relating to the general market efficiency of FX and equity markets in response to significant macroeconomic surprises, and we find certain cases in which profitable trading strategies may exist—a necessary, but not sufficient, precondition for any such strategy.