Macroeconomic Announcements Research Articles

Identifying the role of consumer and producer price index announcements in stock index futures price changes

This study examines the impact of Chinese macroeconomic announcements regarding consumer price index (CPI) and producer price index (PPI) on the China Security Index 300 futures. We find that when the surprise direction of CPI news is consistent with that of PPI, the reactions of stock index futures price to CPI announcements are stronger. Considering the heterogeneity of financial institutions, both PPI and CPI announcements have a more significant impact on the price of stock index futures. Furthermore, the impact of macroeconomic news announcements on the price of stock index futures is related to investors’ trust in financial institutions. The news surprise of financial institutions with high forecast accuracy and rich forecasting experience has a more significant effect on stock index futures.

Sovereign CDS Premiums’ Reaction to Macroeconomic News: An Empirical Investigation

We assess the efficiency of the sovereign credit default swap (CDS) market by investigating how sovereign CDS spreads react to macroeconomic news announcements. Contrary to the vast majority of the existing literature, one of our main findings supports the hypothesis that news announcements reduce market uncertainty and, thus, that both better- and worse-than-expected news lower CDS prices during our sample period. In addition, we find that CDS spreads respond differently to the four macroindicators across the three different regions. Our findings might help investors in these areas to interpret the surprises of macronews announcements when making decisions in CDS markets.

A Model of Two Days: Discrete News and Asset Prices

Abstract Empirical studies demonstrate striking patterns in stock returns related to scheduled macroeconomic announcements. A large proportion of the total equity premium is realized on days with macroeconomic announcements. The relation between market betas and expected returns is far stronger on announcement days as compared with nonannouncement days. Finally, these results hold for fixed-income investments as well as for stocks. We present a model in which agents learn the probability of an adverse economic state on announcement days. We show that the model quantitatively accounts for the empirical findings. Evidence from options data provides support for the model’s mechanism.

Economic forecasts, anchoring bias, and stock returns

AbstractBy utilizing survey forecasts of macroeconomic statistics, we find that market participants’ expectations are not rational as they exhibit an anchoring bias. The forecasts systematically underpredict macroeconomic statistics and the forecast errors are predicted by past macroeconomic announcements. Most importantly, we find that the stock market does not see through this bias, that is, we find statistically significant stock price effects of “anticipated” components of macroeconomic announcements. Investors overweight the importance of historical information and do not make sufficient adjustments after the arrival of new information.

Bond Implied Risks Around Macroeconomic Announcements

Using a large panel of Treasury futures and options, I construct model-free measures of bond uncertainty and tail risks across different tenors from 2000 to 2020. I find that bond tail risk 1) negatively correlates with stock tail risk in general, but the correlation turns positive prior to and around three financial crises; 2) It increased dramatically before the 2008 Financial Crisis and in March 2020 foreshadowing the extreme challenges in the Treasury bond markets; 3) and has significantly decreased in recent years under zero-lower-bound and forward guidance. I then study the behavior of bond tail and uncertainty risk measures around FOMC announcements and document three novel findings: First, bond uncertainty increases three to two days prior to the announcements and reverts back upon release, due to an increase in call option prices rather than puts. Second, yields of 5, 10, and 30 year Treasuries decline by 1bps on the day before the announcement. Third, uncertainty risk cannot help explain the pre-FOMC announcement drift.

The Macroeconomic Announcement Premium

Empirical studies demonstrate striking patterns in stock market returns in relation to scheduled macroeconomic announcements. First, a large proportion of the total equity premium is realized on days with macroeconomic announcements, despite the small number of such days. Second, the relation between market betas and expected returns is far stronger on announcement days as compared with non-announcement days. Finally, these results hold for fixed-income investments as well as for stocks. We present a model with rare events that jointly explains these phenomena. In our model, which is solved in closed form, agents learn about a latent disaster probability from scheduled announcements. We quantitatively account for the empirical findings, along with other facts about the market portfolio.

Index Option Trading Activity and Market Returns

Do order flows in index derivatives play an informational role? Weekly index put order flow on the International Securities Exchange positively and robustly predicts weekly S&P 500 index returns. This result obtains mainly for net put buying and is stronger in high VIX periods and in periods following macroeconomic announcements. We explore rationales for our findings, which include investor sentiment, the notion that market makers trade on information in options markets, and option-based risk protection strategies used by retail investors. The last explanation accords best with our analysis. This paper was accepted by Tyler Shumway, finance.

One Session Options: Playing the announcement lottery?

One session options (OSO) are unique financial instruments that perfectly fit the criteria for a lottery-type asset; a low-price (average premium of 1 b.p.) coupled with a relatively small probability of a large payoff. Using intra-day data for over 12.8 million intra-day option contracts on the 3-Year Treasury Bond, we examine trading behaviour in the OSO market over the period 2002-2019. We find that trading volume is higher on days with a major macroeconomic announcement, and concentrated earlier in the trading session, prior to the data release. Trading volume tends to be higher when there is a difference of opinion surrounding the announcement outcome or when the level of economic policy uncertainty is higher. Trading in OSO has some predictive value for the surprise component of the macroeconomic announcement, but this does not translate into economic profits. While there is a positive option payoff on average, the average net profit is negative once premiums are accounted for. Our results are robust to different measures of uncertainty, market activity, and model form. It seems likely that OSO trading behaviour is best explained by ‘differences of opinion’.

Breaking VIX at open: Evidence of uncertainty creation and resolution

Abstract We decompose daily (close-to-close) changes of VIX into overnight (close-to-open) and trading-hour (open-to-close) changes. Consistent with the notion that non-trading creates uncertainty and trading resolves uncertainty, we find that on average VIX increases overnight and decreases during trading hours. More importantly, we document an important seasonality in VIX, i.e., the non-trading day effect. Overnight increase of VIX involving weekends or holidays is significantly higher than that over two consecutive trading days. We also document that VIX exhibits a clear pattern around pre-scheduled overnight and trading-hour macroeconomic announcement. Finally, we show that breaking VIX changes into overnight and trading-hour components and incorporating the non-trading day effect lead to not only significant improvements in in-sample fitting but also superior performance of out-of-sample-forecasting and active trading strategies.

Market Response to Macroeconomic Announcements under Optimal Attention Allocation: Theory and Evidence

I develop a model of investor behavior around prescheduled macroeconomic announcements. My model analyzes the optimal allocation of investor attention between systematic and idiosyncratic risk factors when a macroeconomic announcement is anticipated. Skilled investors, when producing information under a limited attention capacity, optimally allocate more of their attention to analyzing the idiosyncratic risk factor when they anticipate more precise public information about the systematic risk factor from the macroeconomic announcement. Consequently, my model predicts that, the more informative (precise) the macroeconomic announcement is expected to be about the underlying risk factors, ceteris paribus, the more uncertainty pre-announcement, the more resolution of uncertainty post-announcement, and the higher the trading volume around the announcement on the market index. My empirical analysis of trading by investors around both FOMC and CPI announcements support my model's predictions. In particular, my empirical findings are consistent with model predictions about the effect of the anticipated macroeconomic announcement precision on investor attention allocation, the effect of investor attention on the levels of pre-announcement and post-announcement trading volumes, and the effect of investor attention on the ratio of post-announcement trading volume over the pre-announcement trading volume.

The MPC meetings, macroeconomic announcements and exchange rate behaviour in Nigeria

Literature recognise that announcement impinge shocks which could shift the mean behaviour of the exchange rate. This study apply event driven models to analyse how the expectation of daily log-exc...

Information-Driven Volatility

Modern asset pricing theory predicts an unambiguously positive relationship between volatility and expected returns. Empirically, however, realized volatility in the past often predicts expected returns in the future with a negative sign, as exemplified by the volatility-managed portfolios of Moreira and Muir (2017). Theoretically, we show that information-driven volatility induces a negative correlation between past realized volatility and expected volatility and expected returns in the future. We develop a simple asset pricing model based on this intuition and demonstrate that our model can account for several volatility-related asset pricing puzzles such as the return on volatility managed portfolios, the “variance risk premium” return predictability (Bollerslev, Tauchen, and Zhou, 2009), and the predictability of returns by implied volatility reduction on macroeconomic announcement days.

Liquidity, investor attention, and adverse selection around macroeconomic announcements

Liquidity, investor attention, and adverse selection around macroeconomic announcements

Scheduled Macroeconomic News Announcements and Intraday Market Sentiment

Scheduled Macroeconomic News Announcements and Intraday Market Sentiment

Words Speak as Loudly as Actions: Central Bank Communication and the Response of Equity Prices to Macroeconomic Announcements

Words Speak as Loudly as Actions: Central Bank Communication and the Response of Equity Prices to Macroeconomic Announcements

Media effects matter: Macroeconomic announcements in the gold futures market

Despite increasing research on firm-specific news, it is unclear how the media affects the assimilation of macroeconomic news by futures markets. To fill this gap, we employ scheduled and non-scheduled macroeconomic announcements, as well as 60,030 instances of macroeconomic news reporting in China, to investigate the media’s role in transmitting macroeconomic news to the gold futures market. We find that macroeconomic announcements, while necessary, may not be sufficient to drive the gold futures market. Meanwhile, the media—as a vital intermediary—is essential for news absorption; the effect is stronger for national and political media. Further, the gold futures market asymmetrically reacts to good and bad news; only reporting on good news can invoke significant market responses. Our findings demonstrate the importance of the information environment cultivated by powerful media in improving the efficiency of financial markets, and help to explain why bad news moves slowly from a media perspective.

The Causal Impact of Macroeconomic Uncertainty on Expected Returns

I quantify the causal impact of macroeconomic uncertainty on time-varying expected returns. The exogenous timing of macroeconomic announcements provides an instrument for uncertainty. Using daily measures of macroeconomic uncertainty and expected equity market returns, I find announcements resolve uncertainty, which causes expected returns to fall. Under weak assumptions, macroeconomic uncertainty accounts for at most 35% of expected return variation. Under the additional, empirically justified assumption that no other expected return driver moves on announcements, macroeconomic uncertainty accounts for 12% of expected return variation and a one standard deviation increase in macroeconomic uncertainty raises long-run expected returns by 185 basis points.

Information Consumption and Asset Pricing

ABSTRACTWe study whether firm and macroeconomic announcements that convey systematic information generate a return premium for firms that experience information spillovers. We use information consumption to proxy for investor learning during these announcements and construct ex ante measures of expected information consumption (EIC) to calibrate whether learning is priced. On days when there are information spillovers, affected stocks earn a significant return premium (5% annualized) and the capital asset pricing model performs better. The positive effect of the Federal Reserve Open Market Committee announcements on the risk premia of individual stocks appears to be modulated by EIC. Our findings are most consistent with a risk‐based explanation.

The impact of US macroeconomic news announcements on Chinese commodity futures

Using intraday data from 2013 to 2016, we examine the instantaneous response of eight Chinese commodity futures to 19 different types of scheduled US macroeconomic news announcements after the introduction of night trading in China. We provide robust evidence that the surprise components of a number of news announcements exhibit a significant effect on returns, trading volume, and volatility of a majority of Chinese futures contracts, with gold and silver futures being the most sensitive. Moreover, we observe an asymmetric effect between positive and negative surprise components. A further examination of the responses to the US macroeconomic news announcements using US gold and silver futures over the same sample period provides qualitatively similar results with larger magnitudes. This evidence suggests a possible channel through which the impact of macroeconomic news announcements transmits from the US to the Chinese commodity futures market.

The Diminishing Impact of Monetary Policy on Asset Prices Around Non-FOMC Macroeconomic Announcements

I examine impacts of monetary policy surprises on asset prices around a subset of non-FOMC macroeconomic announcements that are directly relevant to the Fed's monetary policy decisions. I compare periods of conventional and unconventional monetary policies, and find monetary policy impacts on asset prices significantly reduce in the latter period. This finding contrasts the extant literature which focuses on FOMC announcements, and does not find evidence of reduced effects between these periods. Moreover, bond premium, volatility and overall resolution of uncertainty decrease on these announcements. These findings are synthesized in an information framework. Taken together, the evidence suggest unconventional monetary policies deter market's ability to anticipate Fed actions, which has implications for its transmission to asset prices.