Macroeconomic News Announcements Research Articles

Cojumping: Evidence from the US Treasury bond and futures markets

The basis between spot and future prices will be affected by jump behavior in each asset price, challenging intraday hedging strategies. Using formal cojumping tests this paper considers the cojumping behavior of spot and futures prices in high frequency US Treasury data. Cojumping occurs most frequently at shorter maturities and higher sampling frequencies. We find that the probability of cojumping is altered by the presence of an anticipated macroeconomic news announcement. The probability of cojumping is particularly affected by news surprises in non-farm payrolls, CPI, GDP and retail sales. However, the two cojumping tests are also more likely to provide contradictory results in the presence of surprises in non-farm payrolls. On these occasions the market does not clearly signal its short term pricing behavior.

Speed, Algorithmic Trading, and Market Quality Around Macroeconomic News Announcements

This paper documents that speed is crucially important for high frequency trading strategies based on U.S. macroeconomic news releases. Using order level data of the highly liquid S&P500 ETF traded on NASDAQ from January 6, 2009, to December 12, 2011, we find that a delay of 300 milliseconds (1 second) significantly reduces returns by 3.08% (7.33%) compared to instantaneous execution over all announcements in the sample. This reduction is stronger in case of high impact news and on days with high volatility. In addition, we assess the effect of algorithmic trading on market quality around macroeconomic news. Increases in algorithmic trading activity have a positive (mixed) effect on market quality measures when we use algorithmic trading proxies that capture the top of the order book (full order book).

Response to Public Information in Futures Markets: Evidence from the Financial Crisis

This paper examines the impact of macroeconomic news announcements on the Australian stock index futures market during the financial crisis of 2007-2008. The financial crisis is characterized by higher price volatility and trading activity, wider bid-ask spreads and lower depth in the futures market. The responses of price volatility and trading volume to news announcements are more intense and short-lived than before the crisis. Bid-ask spreads widen further around announcements than before the crisis, while depth remains at diminished levels. These results imply that news announcements carry richer information content than before the financial crisis.

The Pre-FOMC Announcement Drift

We document large average excess returns on U.S. equities in anticipation of monetary policy decisions made at scheduled meetings of the Federal Open Market Committee (FOMC) in the past few decades. These pre-FOMC returns have increased over time and account for sizable fractions of total annual realized stock returns. While other major international equity indices experienced similar pre-FOMC returns, we find no such eff ect in U.S. Treasury securities and money market futures. Other major U.S. macroeconomic news announcements also do not give rise to pre-announcement excess equity returns. Pre-FOMC returns are higher in periods when the slope of the Treasury yield curve is low, implied equity market volatility is high, and when past pre-FOMC returns have been high. We discuss challenges at explaining these returns with standard asset pricing theory.

Impact of macroeconomic news on metal futures

This paper uses intra-day data for the period 2002 through 2008 to examine the intensity, direction, and speed of impact of US macroeconomic news announcements on the return, volatility and trading volume of three important commodities – gold, silver and copper futures. We find that the response of metal futures to economic news surprises is both swift and significant, with the 8:30 am set of announcements – in particular, nonfarm payrolls and durable goods orders – having the largest impact. Furthermore, announcements that reflect an unexpected improvement in the economy tend to have a negative impact on gold and silver prices; however, they tend to have a positive effect on copper prices. In comparison, realized volatility and volume for all three metals are positively influenced by economic news. Finally, there is evidence that several news announcements exert an asymmetric impact on market activity variables.

Effects of Macroeconomic News Announcements on Risk-neutral Distribution: Evidence from KOSPI200 Intraday Options Data*

This study examines the effects of scheduled macroeconomic news announcements on the implied risk-neutral distribution (RND) from option prices. Using the KOSPI200 index options market as the sample market, this study investigates whether the implied RND responds to scheduled macroeconomic news announcements from South Korea and the US. We select six important macroeconomic news announcements each for South Korea and the US and classify them as good news and bad news according to the KOSPI200 index return on the day of the announcement. We use two parametric methods to recover the RND and conduct regression analyses at daily, hourly, and 5-min intervals. The analysis provided several noteworthy results. First, the RND responds to most of the macroeconomic news announcements, but its response disappears within a day in many cases. Second, the longevity of the response depends on the type of news. Third, the implied volatility tends to increase, and the RND tends to become less leptokurtic after news announcements. Fourth, the RND tends to become less (more) negatively skewed after a good (bad) news announcement. Finally, there is no clear evidence of the information contents regarding the effect of news announcements in the RND.

Forecasting Bond Returns Using Jumps in Intraday Prices

This article builds on the work of previous researchers who showed that the average jump mean in bond prices can predict excess bond returns, capturing the countercyclical behavior of risk premia. We show that these jumps often take place at 8:30 and 10:00, directly linking them to specific macroeconomic news announcements. Mean reversion, which looks at the total return over the past period rather than just the part related to jumps, has no predictive ability. Hence it is important to consider excess returns related to macroeconomic announcements that matter to market participants, and jumps are a good market proxy for what investors believe is important news. Our improved jump measure produces a Sharpe ratio of 0.52 in an out-of-sample market-neutral investment strategy. <b>TOPICS:</b>Fixed-income portfolio management, statistical methods, volatility measures

Intraday Seasonalities and Macroeconomic News Announcements

Abstract Using a data set consisting of more than five years of 5‐minute intraday stock index returns for major European stock indices and US macroeconomic surprises, conditional means and volatility behaviour in European markets were investigated. The findings suggest that the opening of the US stock market significantly raises the level of volatility in Europe, all markets responding in an identical fashion. Furthermore, US macroeconomic surprises exert an immediate and major impact on both the European stock markets’ intraday returns and volatilities. Thus, high frequency data appear to be critical for the identification of news impacting the markets.

Information aggregation around macroeconomic announcements: Revisions matter

I show that an empirical relation exists between stock returns on macroeconomic news announcement days and the future revisions of the released data but that this link differs across the business cycle. Using three major macroeconomic series that undergo significant revisions (nonfarm payroll, gross domestic product, and industrial production), I present evidence that daily returns on the Standard & Poor's 500 index and revisions are positively related in expansions and negatively related in recessions. The results suggest that revisions do matter, i.e., that investors care about the final revised value of a macroeconomic series, that they infer accurate information from the release of the preliminary inaccurate report, and that the more precise information is aggregated into prices on the day of the initial announcement. The results are consistent with the predictions of rational expectations trading models around public announcements combined with well-established empirical results on the asymmetric interpretation of information across the business cycle.

Intraday jumps and US macroeconomic news announcements

This paper applies recent non-parametric intraday jump detection procedures to investigate the presence and importance of intraday jumps in US futures markets. More importantly, the paper investigates the extent to which statistically significant intraday jumps are associated with US macroeconomic news announcements. Jumps are prevalent, large and contribute heavily to total daily price variation. Approximately one third of jumps correspond to US macroeconomic news announcements, with pure announcement effects causing large increases in the absolute sizes of jumps and the informational surprise of the announcement explaining large proportions of the jumps. The statistical and economic significance of news-related jumps is confirmed by results that show higher volatility persistence, predictability of lower frequency returns, larger effects on microstructure variables, jump clustering and co-jumps from these jumps versus non-news-related jumps, although there are some interesting variations across asset classes.

THE IMPACT OF DOMESTIC AND FOREIGN MACROECONOMIC NEWS ON STOCK MARKET VOLATILITY: ISTANBUL STOCK EXCHANGE

The purpose of the present paper is to examine the impact of domestic and foreign macroeconomic news announcements on the Istanbul Stock Exchange for the period between 2002 and 2010. The market reaction to the news announcements is tested within a research window through which the reaction can be filtered. The results indicate that foreign announcements do not have a significant effect, whereas domestic announcements are responsible for observed volatility in the market. In other words, within two consecutive sessions after the news is released, the market shows a marked reaction to the news.

Information Shocks, Liquidity Shocks, Jumps, and Price Discovery: Evidence from the U.S. Treasury Market

In this paper, we identify jumps in U.S. Treasury-bond (T-bond) prices and investigate what causes such unexpected large price changes. In particular, we examine the relative importance of macroeconomic news announcements versus variation in market liquidity in explaining the observed jumps in the U.S. Treasury market. We show that while jumps occur mostly at prescheduled macroeconomic announcement times, announcement surprises have limited power in explaining bond price jumps. Our analysis further shows that preannouncement liquidity shocks, such as changes in the bid-ask spread and market depth, have significant predictive power for jumps. The predictive power is significant even after controlling for information shocks. Finally, we present evidence that post-jump order flow is less informative relative to the case where there is no jump at announcement.

Forecasting Bond Returns Using Jumps in Intraday Prices

We build on the work of Wright and Zhou (2009) who show that the average jump mean in bond prices can predict excess bond returns, capturing the countercyclical behaviour of risk premia. We show that these jumps often take place at 8:30 and 10:00 directly linking them to specific macroeconomic news announcements. Mean-reversion, which looks at the total return over the past period rather than just the part related to jumps, has no predictive ability. Hence it is important to consider excess returns that are related to macroeconomic announcements that matter to market participants, and jumps are a good market proxy for what investors believe is important news. Our improved jump measure produces a Sharpe ratio of 0.52 in an out-of-sample market-neutral investment strategy.

Simultaneous monetary policy announcements and international stock markets response: An intraday analysis

This paper investigates the return and volatility response of major European and US equity indices to monetary policy surprises by utilizing extensive intraday data on 5-min price quotes along with a comprehensive dataset on monetary policy decisions and macroeconomic news announcements. The results indicate that the monetary policy decisions generally exert immediate and significant influence on stock index returns and volatilities in both European and the US markets. The findings also show that press conferences held by the European Central Bank (ECB) that follow monetary policy decisions on the same day have a clear impact on European index return volatilities. This implies that they convey additional important information to market participants. Overall, our analysis suggests that the use of high frequency data is critical to separate the effect of monetary policy actions from those of macroeconomic news announcements on stock index returns and volatilities.

International macroeconomic announcements and intraday euro exchange rate volatility

The short-run reaction of Euro returns volatility to a wide range of macroeconomic announcements is investigated using 5-min returns for spot Euro–Dollar, Euro–Sterling and Euro–Yen exchange rates. The marginal impact of each individual macroeconomic announcement on volatility is isolated whilst controlling for the distinct intraday volatility pattern, calendar effects, and a latent, longer run volatility factor simultaneously. Macroeconomic news announcements from the US are found to cause the vast majority of the statistically significant responses in volatility, with US monetary policy and real activity announcements causing the largest reactions of volatility across the three rates. ECB interest rate decisions are also important for all three rates, whilst UK Industrial Production and Japanese GDP cause large responses for the Euro–Sterling and Euro–Yen rates, respectively. Additionally, forward looking indicators and regional economic surveys, the release timing of which is such that they are the first indicators of macroeconomic performance that traders observe for a particular month, are also found to play a significant role.

Simultaneous Monetary Policy Announcements and International Stock Markets Response: An Intraday Analysis

This paper investigates the return and volatility responses of major European and the US equity indices to monetary policy surprises using extensive intraday data on 5-minute price quotes along with a comprehensive dataset on monetary policy decisions and macroeconomic news. Our results show that monetary policy decisions generally exert an immediate and significant influence on stock index returns and volatilities in both European and US markets. Our findings also indicate that European Central Bank’s (ECB) press conferences following monetary policy decisions on the same day have define impacts on European index return volatilities, implying that they convey important information to market participants. However, in contrast to some earlier evidence, we do not find any support for the hypothesis that return volatilities in European and US markets are significantly affected by the path surprises. Overall, our analysis suggests that the use of high frequency data is critical for separating the effects of monetary policy actions from those of macroeconomic news announcements on stock index returns and volatilities.

Asymmetries and State Dependence: The Impact of Macro Surprises on Intraday Exchange Rates

The impact of news surprises on exchange rates depends in principle upon a number of factors including the state of the economy, institutional setting and nature of the expected policy response. These characteristics may lead to state-contingent asymmetric responses to news. In this paper we investigate the possible asymmetric response of intraday exchange rates (5-minute intraday JPY/USD) to macroeconomic news announcements during a very unusual period--Japan during 1999-2006 when the money market interest rate was effectively zero. We may think of this period as a natural experiment consisting of an institutional setting when interest rates may rise but not decline, thereby constraining both endogenous policy reactions to news and private market expectations. Asymmetric responses to news, to the extent that they are important in exchange rate markets as they are in equity markets, would seem particularly likely to be evident during this period. We consider several ways asymmetric responses may be manifested and linked to macroeconomic news during the zero-interest rate period. We assess whether the intraday exchange rate responds differently depending on whether the news is emanating from Japan or the U.S.; we consider the state of the business cycle; and we distinguish between good and bad news.

A note on the impact of scheduled macroeconomic news announcements on implied volatility

This note demonstrates that different methodological approaches may lead to somewhat different conclusions about the impact of scheduled macroeconomic news announcements on implied volatility. While there is no doubt that implied volatilities are significantly affected by macroeconomic releases, the analysis presented in this note shows that different approaches provide inconsistent results regarding the direction of the effect and also about the relative importance of different types of macroeconomic announcements.

On the Volatility and Comovement of U.S. Financial Markets around Macroeconomic News Announcements

AbstractThe objective of this paper is to provide a deeper insight into the links between financial markets and the real economy. To that end, we study the short-term anticipation and response of U.S. stock, Treasury, and corporate bond markets to the first release of surprise U.S. macroeconomic information. Specifically, we focus on the impact of these announcements not only on the level, but also on the volatility and comovement of those assets’ returns. We do so by estimating several extensions of the parsimonious multivariate GARCH-DCC model of Engle (2002) for the excess holding-period returns on seven portfolios of these asset classes. We find that both the process of price formation in each of those financial markets and their interaction appear to be driven by fundamentals. Yet our analysis reveals a statistically and economically significant dichotomy between the reaction of the stock and bond markets to the arrival of unexpected fundamental information. We also show that the conditional mean, volatility, and comovement among stock, Treasury, and corporate bond returns react asymmetrically to the information content of these surprise announcements. Overall, the above results shed new light on the mechanisms by which new information is incorporated into prices within and across U.S. financial markets.

The high-frequency impact of news on long-term yields and forward rates: Is it real?

Macroeconomic news announcements move yields and forward rates on nominal and index-linked bonds and inflation compensation. This paper estimates the reactions using high-frequency data on nominal and index-linked bond yields, allowing the effects of news announcements on real rates and inflation compensation to be parsed far more precisely than is possible using daily data. Long-term nominal yields and forward rates are very sensitive to macroeconomic news announcements. Inflation compensation is sensitive to announcements about price indices and monetary policy. However, for news announcements about real economic activity, such as nonfarm payrolls, the vast majority of the sensitivity is concentrated in real rates. Accordingly, most of the sizeable impact of news about real economic activity on the nominal term structure of interest rates represents changes in expected future real short-term interest rates and/or real risk premia rather than changes in expected future inflation and/or inflation risk premia. Such sensitivity of real rates to macroeconomics news is hard to rationalize within the framework of existing macroeconomic models.