Order imbalance,market returns and macroeconomic news: Evidence from the Australian interest rate futures market

The relationship between order imbalance, market returns and macroeconomic news is examined in the context of the Australian interest rate futures market. Contemporaneous order imbalance exerts a significant impact on market returns in the expected direction i.e. excess buy (sell) orders drive up (down) prices. Order imbalances are related to past market returns with market participants acting in a contrarian manner across all products following market rallies. Nine major macroeconomic announcements are identified with order imbalance, and returns, reacting to such announcements in a manner that correctly reflects the news component. Following a scheduled macroeconomic announcement there is an increase in the level of information asymmetry within the interest rate futures market, demonstrated by an increased sensitivity to order flow. Finally, the pattern of order imbalance immediately prior to scheduled announcements suggests that there is no information leakage.     

The impact of economic news on bond prices: Evidence from the MTS platform

Although there is an extensive literature on the impact of macroeconomic announcements on asset prices, the bond market has received less attention than the foreign exchange and equity markets, even less if we consider the European market. This paper uses high-frequency intra-day data over a three-year period to investigate the impact of regularly scheduled macroeconomic news and monetary policy announcements on the returns of the Italian government bond market, the largest one in the Euro-zone. With respect to the previous papers, we use a much broader set of announcements, 68, and a relatively novel dataset (MTS). We find that 25 news have a significant impact on bond returns and that almost all announcements are incorporated into prices within 20 min from the release.     

Macroeconomic News, Business Cycles and Australian Financial Markets

This paper examines the effects of news surprises of macroeconomic announcements on Australian financial markets across different business cycles. We find that overall, the news arrivals are influential in both stock and debt markets but in an interesting array of responses across asset classes. Debt markets are more responsive to macroeconomic news surprises compared to the stock market, hence supporting the notion that information revealed from the macroeconomic news is related to interest rates. Specifically, news about CPI is important over the full sample period and especially during expansions for both stock and bond returns while the unemployment rate news is influential to the money market rates. Furthermore, these effects are seemingly asymmetric in nature, with their directions and magnitudes conditional on the state of economy.     

Intraday periodicity,long memory volatility,and macroeconomic announcement effects in the US Treasury bond market

In this paper, we provide a detailed characterization of the return volatility in US Treasury bond futures contracts using a sample of 5-min returns from 1994 to 1997. We find that public information in the form of regularly scheduled macroeconomic announcements is an important source of volatility at the intraday level. Among the various announcements, we identify the Humphrey–Hawkins testimony, the employment report, the producer price index (PPI), the employment cost, retail sales, and the NAPM survey as having the greatest impact. Our analysis also uncovers striking long-memory volatility dependencies in the fixed income market, a finding with important implications for the pricing of long-term options and other related instruments.     

Intraday futures market behaviour around major scheduled macroeconomic announcements: Australian evidence

This paper examines intraday futures market behaviour around major scheduled macroeconomic information announcements on the Sydney Futures Exchange (SFE). Prior literature analysing intraday price behaviour around announcements is extended to trading volume and quoted bid–ask spreads. The analysis of price volatility, trading volume and quoted bid–ask spreads indicates that the majority of adjustment to new information occurs rapidly, within 240 seconds of the scheduled time for major announcements, with some evidence of abnormal activity prior to announcements. Analysis of quoted bid–ask spreads suggests that they significantly widen in the 20 seconds prior to announcements and remain significantly wider for 30 seconds following announcements. The increase in quoted spreads is related to both expected and unexpected volatility, implying that market participants increase quoted spreads around information announcements as a consequence of adverse selection costs.     

How Markets Process Information: News Releases and Volatility

We examine the impact of scheduled macroeconomic news announcements on interest rate and foreign exchange futures markets. We find these announcements are responsible for most of the observed time-of-day and day-of-the-week volatility patterns in these markets. While the bulk of the price adjustment to a major announcement occurs within the first minute, volatility remains substantially higher than normal for roughly fifteen minutes and slightly elevated for several hours. Nonetheless, these subsequent price adjustments are basically independent of the first minute's return. We identify those announcements with the greatest impact on these markets.     

January Anomalies: Implications for the Market's Incorporation of News

We examine the responses of five interest rate instruments to the release of macroeconomic announcements to determine whether January returns behave differently from returns in other months when information is released. Our results suggest that in all instruments, returns in January are less sensitive to macroeconomic news, compared with other months. This is true even though the number and type of announcements are much the same in January as in other months. The instruments examined feature important differences in liquidity, maturity, credit risk, and other institutional differences, suggesting that our evidence is robust.     

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.     

Macroeconomic announcements and asymmetric volatility in bond returns

This study analyses the impact of macroeconomic news announcements on the conditional volatility of bond returns. Using daily returns on the 1, 3, 5 and 10 year US Treasury bonds, we find that announcement shocks have a strong impact on the dynamics of bond market volatility. Our results provide empirical evidence that the bond market incorporates the implications of macroeconomic announcement news faster than other information. Moreover, after distinguishing between types of macroeconomic announcements, releases of the employment situation and producer price index are especially influential at the intermediate and long end of the yield curve, while monetary policy seem to affect short-term bond volatility.     

RBA monetary policy communication: The response of Australian interest rate futures to changes in RBA monetary policy

This paper examines the Australian interest rate futures market reaction to changes in Reserve Bank of Australia (RBA) monetary policy. Having determined market expectations from 30-day Interbank futures, the study finds evidence that interest rate futures react strongly to target rate announcements across the maturity spectrum, with a stronger reaction evident in short maturity futures. Further, there is evidence of an asymmetric news effect whereby volatility reacts more strongly to bad news. Disaggregation of the market reaction into target- and path-surprise factors demonstrates that the change in market expectations of future target rates plays a significant role in explaining changes in yield, particularly for bond futures. There is strong evidence that monetary policy statements drive the path-factor, while the December 2007 modification in policy communication has improved the ability of the RBA to influence market expectations.     

The reaction of asset prices to macroeconomic announcements in new EU markets: Evidence from intraday data

We estimate the impact of macroeconomic news on composite stock returns in three emerging European Union financial markets (the Budapest BUX, Prague PX-50, and Warsaw WIG-20), using intraday data and macroeconomic announcements. Our contribution is twofold. We employ a larger set of macroeconomic data releases than used in previous studies and also use intraday data, an excess impact approach, and foreign news to provide more reliable inferences. Composite stock returns are computed based on 5-min intervals (ticks) and macroeconomic news are measured based on the deviations of the actual announcement values from their expectations. Overall, we find that all three new EU stock markets are subject to significant spillovers directly via the composite index returns from the EU, the U.S. and neighboring markets; Budapest exhibits the strongest spillover effect, followed by Warsaw and Prague. The Czech and Hungarian markets are also subject to spillovers indirectly through the transmission of macroeconomic news. The impact of EU-wide announcements is evidenced more in the case of Hungary, while the Czech market is more impacted by U.S. news. The Polish market is marginally affected by EU news. In addition, after decomposing pooled announcements, we show that the impact of multiple announcements is stronger than that of single news. Our results suggest that the impact of foreign macroeconomic announcements goes beyond the impact of the foreign stock markets on Central and Eastern European indices. We also discuss the implications of the findings for financial stability in the three emerging European markets.     

Trading activity in the equity market and its contingent claims: An empirical investigation

Little is known about the joint dynamics of volume across the various contingent claims on the equity market. We study the time-series of trading activity in the cash S&P 500 index and its derivatives (options, the legacy and E-mini futures contracts, and the ETF), and consider their dynamic relation with the macroeconomy, over more than 3000 trading days during 1997–2009. Legacy futures volume has trended downward while other series have trended upward. Total futures volume has increased, suggesting that the trading in the legacy contract has been at least partially supplanted by trading in the E-mini contract. All series are highly cross-correlated and jointly dependent. Signed and absolute trading activity in contingent claims (most prominently, options) predicts shifts in aggregate state variables such as the short interest rate, and the term and credit spreads, as well as signed and absolute returns around major macroeconomic announcements. Overall, consistent with the informational role of options, their volume innovations have the strongest forecasting ability for fluctuations in the macroeconomic environment.     

Intraday Empirical Regularities in Interest Rate and Equity Index Futures Markets, and the Effect of Macroeconomic Announcements

This paper focuses on the intraday behaviour of returns, volatility, volume and price reversals for the Short Sterling interest rate and FTSE100 stock index futures contracts traded on the London International Financial Futures and Options Exchange (LIFFE). It also examines the effect of scheduled macroeconomic announcements and interest rate changes on the intraday behaviour of the variables of interest. We find clear differences and similarities with US studies and between the interest rate and equity contracts, which have important theoretical implications. This new evidence helps discriminate between the theories seeking to explain these intraday patterns.     

News Releases, Market Integration, and Market Leadership

Using intraday data we examine the response of futures on the British Long Gilt (Gilt), the German Government Bond (Bund), the U.S. Treasury Bond (Bond), the Japanese Government Bond (JGB), and the Italian Government Bond (IGB) to the release of U.S. macroeconomic news. Bond, Gilt, and Bund futures respond strongly to the news releases. The response of JGB futures is less pronounced, and IGB futures display weak responses at best. The instruments take time to adjust to news in the announcements. Following the announcements, Bond futures exert a high degree of market leadership. Evidence of increasing market integration is also noted.     

Scheduled domestic and US macroeconomic news and stock valuation in Europe

This paper investigates whether investors on European stock markets regard news announcements about domestic and US macroeconomic variables as an important source of information when valuing stocks. To assess the importance of scheduled domestic and US macroeconomic news announcements, implied volatilities are analyzed on the German and Finnish stock markets. The results show that the US employment report and the Federal Open Market Committee (FOMC) meeting days have a significant impact on implied volatility on both European markets. The domestic news announcements have no effect on implied volatility on either of the markets. The results indicate that the US macroeconomic news announcements are valuable sources of information on European stock markets while domestic news releases seem to be unimportant.     

Dynamic news effects in high frequency Euro exchange rates

This paper investigates the dynamic, short-run response of Euro exchange rate returns to the information surprise of global macroeconomic announcements. In addition, it advocates a new approach to modelling intraday exchange rate volatility to allow accurate characterisation of reactions. US macroeconomic news generates far more dramatic responses in EUR–USD returns and returns volatility than news on the macroeconomic performance of other countries. However, some Eurozone and German indicators are also important and UK announcements are important for the EUR–GBP rate. The reaction of exchange rate returns to news is very quick and occurs within the first 5 min of the release with very little reaction in the 15 min before and after. These findings show that exchange rates are strongly linked to fundamentals in the 5-min intervals immediately following the data release. Reactions to news are found to vary in magnitude over the sample, with the largest responses to news occurring in response to turning points in the cumulative flow of news.     

The Impact of Public Information on the Stock Market

We study the relation between the number of news announcements reported daily by Dow Jones & Company and aggregate measures of securities market activity including trading volume and market returns. We find that the number of Dow Jones announcements and market activity are directly related and that the results are robust to the addition of factors previously found to influence financial markets such as day-of-the-week dummy variables, news importance as proxied by large New York Times headlines and major macroeconomic announcements, and noninformation sources of market activity as measured by dividend capture and triple witching trading. However, the observed relation between news and market activity is not particularly strong and the patterns in news announcements do not explain the day-of-the-week seasonalities in market activity. Our analysis of the Dow Jones database confirms the difficulty of linking volume and volatility to observed measures of information.     

News announcements and price discovery in foreign exchange spot and futures markets

This paper studies competition in price discovery between spot and futures rates for the EUR–USD and JPY–USD markets around scheduled macroeconomic announcements. Using both the information shares approach and the common factor component weight approach for futures prices from the Chicago Mercantile Exchange (CME), as well as deal prices from spot trading on the Electronic Broking Services (EBS), we gauge how foreign exchange spot and futures markets respond to news surprises. The results show that the spot rates provide more price discovery than do the CME futures rates overall; however, the contribution of the futures rates to price discovery increases in the time surrounding macroeconomic announcement releases.     

The effect of macroeconomic news on beliefs and preferences: Evidence from the options market

We examine the effect of regularly scheduled macroeconomic announcements on the beliefs and preferences of participants in the U.S. Treasury market by comparing the option-implied state-price densities (SPDs) of bond prices shortly before and after the announcements. We find that the announcements reduce the uncertainty implicit in the second moment of the SPD regardless of the content of the news. The changes in the higher-order moments, in contrast, depend on whether the news is good or bad for economic prospects. We explore three alternative explanations for our empirical findings: relative mispricing, changes in beliefs, and changes in preferences. We find that our results are consistent with time-varying risk aversion.     

International linkages and macroeconomic news effects on interest rate volatility — Australia and the US

We examine international linkages between daily time series of US and Australian 3-month treasury bills and 10-year government bonds from 1987–1995, paying particular attention to the effects of macroeconomic announcements in both countries. The two countries' interest rate data are modeled by a bivariate exponential generalized autoregressive conditional heteroscedasticity (EGARCH) formulation. The results suggest that market participants believed the Reserve Bank of Australia targeted the consumer price index (CPI), while the Federal Reserve targeted economic activity. Monetary policy announcements had significant effects on interest rates, as well as on their volatility in the short term. US macroeconomic activity announcements significantly moved Australian interest rates, particularly at the short end. Australian interest rates moved significantly in response to the previous day's US interest rate shocks. The conditional volatility of the Australian interest rate changes was also significantly influenced by lagged US interest rate shocks, as well as by surprises in US macroeconomic announcements. Some macroeconomic news announcements raised conditional volatilities, while others reduced them. Overall, there was a remarkable and complex array of linkages between the two countries.