Scheduled Announcements Research Articles

The Impact of HFT on the Speed of Adjustment to New Information: Evidence from Interest Rate Derivatives

This study investigates the impact of HFT on the intraday speed of adjustment and price discovery following scheduled macroeconomic announcements for interest rate derivatives. Our results demonstrate that the speed of adjustment to new information has been improved for both interest rate derivatives, exchange-traded futures and over-the-counter (OTC) traded swaps, in the presence of HFT. In addition, we examine the lead-lag effects between swaps and futures during macro information releases in the pre- and post-colocation periods. We find that HFT strengthens the lead effects of futures on scheduled announcement days. This research was funded under Corporations regulation 7.5.88 through the use of excess funds from the SFEFF.

Volatility jumps and macroeconomic news announcements

While prior literature documents a link between macroeconomic news and price jumps, this paper demonstrates two channels through which economic announcements also manifest in volatility jumps. First, there is a strong coincidence of volatility jumps with scheduled announcements. Second, the mean jump size is an asymmetric function of the news surprise, with bad news resulting in larger jumps than good news. Furthermore, realized volatility (RV) and option‐implied volatility (IV) behave very differently over the days surrounding announcements. RV increases sharply on announcement days, while IV tends to decline consistent with the resolution of heightened uncertainty embedded in option prices.

Value of Information and Use of Market Versus Limit Orders by Informed Investors

This paper examines how the value of information is related to the use of market orders by informed investors. We address this question by using a unique transaction-level data set that shows if, for a given transaction, an institutional investor used a market order or served as a liquidity provider. By combining this data with a data set on scheduled and non-scheduled company announcements, we examine how institutional investors use market versus limit orders when information value is high or low. With scheduled announcements, we find evidence that informed investors tend to use less market orders when the value of information is low, and more market orders when the value of information is high. However, we do not find statistically significant results regarding non-scheduled announcements, which can indicate that investors do not process information on non-scheduled versus scheduled announcements in the same way or that the contents of non-scheduled announcements in our sample are less important compared to scheduled ones.

Explaining the Pre-Announcement Drift

We propose a theoretical explanation for the puzzling positive pre-announcement drift that has been empirically documented to occur before scheduled announcements, using as a main example the drift before the Federal Open Market Committee (FOMC) meetings. We construct a general equilibrium model of disagreement (difference-of-opinion) where two groups of investors react differently to the information released at the scheduled announcement and to costly signals available in the interval between two announcement releases. The model shows that the risk premium is not realized uniformly over time and matches consistently three key empirical facts: (1) the upward drift in prices just before the announcement, which does not revert after the announcement, (2) lower price volatility before the announcement, followed by higher volatility after the announcement, and (3) low (high) trading volume before (after) the announcement.

VPIN, Jump Dynamics and Inventory Announcements in Energy Futures Markets

The Volume‐Synchronized Probability of Informed Trading (VPIN) metric is proposed by Easley et al. (2011, 2012) (Journal of Portfolio Management, 37:118–128; Review of Financial Studies, 25:1457–1493) as a real‐time measure of order flow toxicity in an electronic trading market. This study examines the performance of VPIN around inventory announcements and price jumps in crude oil and natural gas futures markets with a sample period from January 2009 to May 2015. We obtain several interesting results: (i) VPIN increases significantly around inventory announcements with price jumps as well as at jumps not associated with any scheduled announcements. (ii) VPIN does not peak prior to the events but shortly after. (iii) A minor variation of VPIN based on exponential smoothing significantly improves the early warning signal property of VPIN, and this estimate of toxicity returns faster to the pre‐event level. © 2017 Wiley Periodicals, Inc. Jrl Fut Mark 37:542–577, 2017

Market Sentiment and Liquidity Provision

This paper examines how liquidity provision is affected by market sentiment prior to scheduled earnings announcements. We use different measures of volatility to proxy for market-wide sentiment and stock-specific uncertainty to examine how they affect traders’ liquidity provision in the lead-up to earnings announcements. Our results show that traders reduce their provision of liquidity as volatility increases before scheduled announcements. This result is asymmetric with more pronounced effects on the bid side. Changes in the market depth closer to the top of the limit order book are associated with market-wide sentiment (VIX), whereas stock-specific implied volatility drives liquidity provision of value traders on the order book further away from the best-bid-offer price.

The Arrival of News and Jumps in Stock Prices

This paper introduces a non-parametric framework to statistically examine how news events, such as company or macroeconomic announcements, contribute to the pre- and post-event jump dynamics of stock prices under the intraday seasonality of the news and jumps. We demonstrate our framework, which has several advantages over the existing methods, by using data for i) the S&P 500 index ETF, SPY, with macroeconomic announcements and ii) Nasdaq Nordic Large-Cap stocks with scheduled and non-scheduled company announcements. We provide strong evidence that non-scheduled and some macroeconomic announcements contribute jumps that follow the releases and also some evidence for pre-jumps that precede the scheduled arrivals of public information, which may indicate non-gradual information leakage. Additionally, our results show that releases of unexpected information are not reacted to uniformly across Nasdaq Nordic markets, even if they are jointly operated and are based on the same exchange rules.

Liquidity Effects of Earnings Announcements in Stock Limit Order Markets: Empirical Evidence from NASDAQ Nordic

Information arrivals may drive investors to require immediacy, generating sudden liquidity demand across multiple price levels in limit order books. We document significant intraday changes in stock limit order book characteristics and liquidity beyond the best levels around scheduled and non-scheduled company announcements. At aggregated level, liquidity beyond the best levels behaves quite differently from the bid-ask spread around scheduled announcements. Moreover, scheduled announcements improve multi-level liquidity to an exceptionally good level. We also provide evidence for pre-reactions in order books before non-scheduled announcements, which suggest the possibility of information leakage.

Macroeconomic Information and the Implied Volatility: Evidence from India VIX

The present study attempts to examine the scheduled macroeconomic announcement effects on the India VIX using OLS regression model and the EGARCH model. The empirical results show that the information content of macroeconomic news on report day and day after does not have significant influences on India VIX, except MCIR. Besides, the findings reveal no significant response of India VIX during one day before the scheduled news announcements. This is due to the fact that India VIX market is more uncertain before the declaration of the results of MCIR convention of RBI, Export, Import, Fiscal Deficit, GDP, IIP and Inflation (CPI/WPI). The study shows that investors do not need to consider the scheduled macroeconomic announcement except MCIR meeting day and one day after in the valuation of options pricing or financial planning.

Limit order books and liquidity around scheduled and non-scheduled announcements: Empirical evidence from NASDAQ Nordic

Information arrivals may drive investors to require immediacy, generating sudden liquidity demand across multiple price levels in limit order books. We document significant intraday changes in stock limit order book characteristics and liquidity beyond the best levels around scheduled and non-scheduled company announcements. At aggregated level, liquidity beyond the best levels behaves quite differently from the bid–ask spread around scheduled announcements. Moreover, scheduled announcements improve multi-level liquidity to an exceptionally good level. We also provide evidence for pre-reactions in order books before non-scheduled announcements, which suggest the possibility of information leakage.

The Presidential Puzzle: Democrats, Macroeconomic News and Equity and Bond Premiums on Announcement Days

Recent empirical finance literature reports a sizable equity premium on two types of days. The first is under Democratic administrations. The second is on scheduled macroeconomic news announcement days. The current study unifies the two strands of literature by documenting that statistically significant and economically large announcement-day U.S. equity premiums have been limited to periods of Democratic administration between 1964 and 2015. On announcement days in Republican administrations, the estimated equity premium accompanying news announcements was negligible. The Democratic announcement-day equity premium was consistently positive in sub-periods; it showed up in international markets; it increased as election day approached; it appeared to be stronger for announcements in successive Democratic administrations; and it was bigger for medium and large market cap stocks than for small market caps stocks on announcement days, even though small stocks have in general beaten large stocks under Democratic presidents. At the same time, we show that FOMC announcements in the 1990-2015 sub-period were associated with positive equity premiums in both Democratic (Clinton and Obama) and Republican (G.W. Bush) administrations; and also that macroeconomic announcements impacted Treasury bond returns primarily in Republican administrations.

Can information be locked up? Informed trading ahead of macro-news announcements

Government agencies routinely allow pre-release access to information to accredited news agencies under embargo agreements. Using high-frequency data, we find evidence consistent with informed trading during embargoes of Federal Open Market Committee (FOMC) scheduled announcements. The E-mini Standard & Poor’s 500 futures’ abnormal order imbalances are in the direction of subsequent policy surprises and contain information that predicts the market reaction to the policy announcements. The estimated informed trades’ profits are arguably large. Notably, we find no evidence of informed trading prior to the start of FOMC news embargoes or during lockups ahead of nonfarm payroll, US Producer Price Index, and gross domestic product data releases.

Is Someone Front-Running You Around News Releases?

This study presents evidence that much of the trading on macro-economic news occurs prior to the scheduled news announcement times. Examining the trading patterns ahead of the ISM Manufacturing Index and Construction Spending announcement, we find that the trading on the not-yet-publicly released embargoed news consistently takes place as long as 30 minutes ahead of the news announcement times. As much as three quarters of the pre-announcement price move appears to be driven by aggressive HFTs.

Individual and institutional trading volume around firm-specific announcements

Purpose – The purpose of this paper is to investigate the immediate impact of firm-specific announcements on the trading volume of individual and institutional investors on the Australian Securities Exchange (ASX), during a period when the market becomes fragmented. Design/methodology/approach – This study uses intraday trading volume data in five-minute intervals prior to and after firm-specific announcements to measure individual and institutional abnormal volume. There are 70 such intervals per trading day and 254 trading days in the sample period. The first 10 minutes of trading (from 10.00 to 10.10 a.m.) is excluded to avoid the effect of opening auction and to ensure consistency in the “starting time” for all stocks. The volume transacted during five-minute intervals is aggregated and attributed to individual or institutional investors using Broker IDs. Findings – Institutional investors exhibit abnormal trading volume before and after announcements. However, individual investors indicate abnormal trading volume only after announcements. Consistent with outcomes expected from a dividend washing strategy, abnormal trading volume around dividend announcements is statistically insignificant. Both individual and institutional investors’ buy volumes are higher than sell volumes before and after scheduled and unscheduled announcements. Research limitations/implications – The study is Australian focused, but the results are applicable to other limit order book markets of similar design. Practical implications – The results add to the understanding of individual and institutional investors’ trading behaviour around firm-specific announcements in a securities market with continuous disclosure. Social implications – The results add to the understanding of individual and institutional investors’ trading behaviour around firm-specific announcements in a securities market with continuous disclosure. Originality/value – These results will help regulators to design markets that are less predatory on individual investors.

Risk and Return Around the Clock

We investigate price discovery over the 24-hour trading day for equities, currencies, bonds, and commodities. Sizable price discovery occurs around the clock for most assets. For a given asset, intraday risk and return distributions are fairly similar, indicating a broadly constant risk-return-relationship during the day. Although the amount of price discovery varies signi cantly during the day and di ers across assets, price discovery is generally e cient around the clock. Most assets do not exhibit the U-shaped intraday volatility pattern that has been documented for US equities, even if only main trading hours are considered. Intraday spikes in volatility are driven by the open or close of the market for the respective asset or other assets and by macroeconomic announcements. Both di usion and jump risk are important drivers of intraday volatility patterns, and US macroeconomic news account for a sizable fraction of jump-driven volatility. For some { but not all { assets, the relationship between volume and volatility that can generally be observed during the trading day does not hold at the time of jumps, suggesting that traders anticipate large price moves at the time of scheduled announcements and market depth falls accordingly.

Are Hedge Funds Smart Money? Liquidity Provision to Noninformational Traders

This paper provides empirical evidence on the liquidity provision of hedge funds to noninformational traders. I propose a method to estimate the daily market-making of funds with equity-based strategies through monthly hedge fund return data. I find that around 25% of my sample of 4,299 hedge funds provided liquidity to noninformational traders over the period from 1994 to 2013. I show that the importance of market-making hedge funds has increased substantially over the last decade. Also, their liquidity provision correlates negatively with market volatility. When market volatility peaked during the financial crisis of 2007-2009, the majority of market-making funds turned into liquidity demanders. Further, I analyse the trading behaviour of hedge funds on days on which price changes are attributable to the release of macroeconomic announcements. A considerable fraction of funds appears to predict the content of scheduled announcements made by the Federal Open Market Committee (FOMC).

Impacts of the US macroeconomic news on Asian stock markets

Purpose – This paper aims to investigate the spillover effect of 14 US key macroeconomic news on the first two moments of 12 Asian stock market returns. Design/methodology/approach – The authors collect market expectation and actual scheduled announcements data for 14 key US's macroeconomic announcements from January 2002 to April 2012 from Bloomberg. The dataset consists of six groups: monetary policy and general macroeconomic indicators: the Federal Reserve's target interest rates (FOMC), gross domestic product (GDP), and leading indicator (LI); price indicators: consumer price index (CPI) and producer price index (PPI); business indicator: housing starts (HS) and industrial production (IP); consumption indicators: retail sales (RS) and consumer confidence level (CONSUM); labor market indicators: non-farm payroll (NFP), unemployment level (UE), and jobless claim (JOB); and external sector indicators: current account (CA) and trade balance (TB). The authors also collect daily opening and closing data of 12 Asian stock markets. Following Dow Jones classification, the authors divide them into two groups: five developed markets (Japan, Hong Kong, Republic of Korea, Singapore and Taiwan), and seven emerging markets (China, India, Indonesia, Malaysia, Pakistan, Sri Lanka, and Thailand). The MA-EGARCH (1,1) model is used for the empirical test. Findings – First, the authors find that stronger than expected news from the USA is associated with higher conditional mean and lower conditional variance of the Asian stock market returns, in general. Second, the Asian stock markets tend to put more weight on information relating to the US labor market than the other news as this indicator reveals much information about the underlying health of the US economy since full employment is the most important mandate for the US administration and policy makers. Third, in responding to the US news, the Asian emerging markets seem to respond stronger to the US news than the Asian developed markets both in terms of the number of responses and the magnitude of the reaction. This suggests that this could be seen as evidence that emerging markets are more dependent on the information content of the US news than the developed markets. Fourth, the US news is absorbed gradually leading to persisting volatility responses in the Asian stock markets. Originality/value – The authors fill a gap in the extant literature in investigating the speeds of the news absorption across the Asia region by examining the spillover effects across three time horizons, namely daily, overnight and intraday.

Can Information Be Locked-Up? Informed Trading Ahead of Macro-News Announcements

Government agencies routinely allow pre-release access to information to accredited news agencies under embargo agreements. Using high frequency data, we find evidence consistent with informed trading during embargoes of the Federal Open Market Committee’s scheduled announcements. The E-mini S&P 500 futures’ abnormal order imbalances are in the direction of subsequent policy surprises and contain information that predicts the market reaction to the policy announcements. The estimated informed trades’ profits are arguably large. Notably, we find no evidence of informed trading prior to the start of FOMC news embargoes or during lockups ahead of nonfarm payroll, PPI, and GDP data releases.

Impact of Macroeconomic Announcements on Interest Rate Futures: High-Frequency Evidence from Australia

This paper investigates the behavior of Australian interest rate futures around the release of major scheduled macroeconomic announcements. The analysis of price volatility, returns, trading activity and bid-ask spreads finds that the adjustment to new information occurs quickly with the significant part of the reaction complete within 30-seconds. The 30-seconds immediately prior to the announcement exhibits high volatility, low levels of volume, and high bid-ask spreads. In the 30 seconds following the scheduled announcement there is strong evidence of a sharp increase in price volatility, significant positive correlation in returns, large adjusted returns and high levels of trading activity. The reaction is stronger in shorter maturity contracts. There is some evidence of price reversals occurring following this sharp adjustment. The 2007-2008 Global Financial Crisis has had a significant impact on the reaction of Australian interest rate futures to major macroeconomic announcements, with evidence of higher volatility, significantly higher returns and decreasing market activity.

IMPACT OF MACROECONOMIC ANNOUNCEMENTS ON INTEREST RATE FUTURES: HIGH‐FREQUENCY EVIDENCE FROM AUSTRALIA

AbstractI investigate the behavior of Australian interest rate futures around the release of major scheduled macroeconomic announcements. The adjustment to new information occurs quickly with the majority of the reaction complete within 30 seconds. The period immediately before the announcement exhibits high volatility, low levels of volume, and wide bid–ask spreads. In the 30 seconds following the scheduled announcement there is a sharp increase in price volatility, significant positive correlation in returns, high levels of trading activity, and large adjusted returns. The reaction is stronger in shorter maturity contracts, and in the period surrounding the 2007–2008 financial crisis.