Volatility spillovers across NFTs news attention and financial markets

The aim of this study is to investigate the volatility spillover connectedness between NFTs attention and financial markets. This paper firstly proposes a new direct proxy for the public’s attention in the NFT market: the non-fungible tokens attention index (NFTsAI), based on 590m news stories from the LexisNexis News & Business database and applies the historical decomposition to assess the historical variations of the NFTsAI. Then the empirical analysis is performed via a TVP-VAR volatility spillover connectedness model. The empirical results show that NFTsAI indicates NFT markets are dominated by cryptocurrency, DeFi, equity, bond, commodity, F.X. and gold markets. And NFT markets are volatility spillover receivers. In addition, NFT assets could impede financial contagion and have significant diversification benefits. Employing a panel pooled OLS regression model as a supplementary analysis and a GARCH-MIDAS model as a robustness test. This study reveals that NFTsAI has sufficient power to explain the return of NFT assets from a fixed effect perspective, and NFTsAI contains useful forecasting information for both short and long-term volatility of NFT markets, separately. The new NFTsAI and the empirical findings contain useful insights for risk-averse investors, portfolio managers, institutional investors, academics and financial policy regulators.     

The role of information acquisition and financial markets in international macroeconomic adjustment

International macroeconomic adjustment to money supply, aggregate expenditure, and relative demand disturbances is analyzed within a framework which emphasizes the role of information. Agents are unable to directly observe disturbances and may become fully informed about disturbances only by purchasing information. We analyze how relative price and exchange rate adjustment depends on the variances of the underlying disturbances while taking into account the incentive to acquire information. We also discuss the conditions which are necessary to preclude a free-rider problem whereby uninformed agents are able to extract from observation of financial market conditions the exact information of the information buyers.     

The real-time information content of macroeconomic news: implications for firm-level earnings expectations

This paper investigates the usefulness of the real-time macroeconomic news-flow as a leading indicator of firm-level end-of-quarter realized earnings. Using recent advances in macroeconomics, I develop a nowcasting model for quarterly earnings and provide two main findings. First, I show that my model provides out-of-sample expectations that are as accurate as analysts’ forecasts. Second, macroeconomic news embedded in my nowcasts is not fully incorporated into investors’ earnings expectations and predicts future abnormal returns around earnings announcements. These findings have three main implications for capital markets research. First, real-time macroeconomic news can be used to update earnings expectations in real-time. Second, there are economic benefits of doing so, as evidenced by the magnitude of risk-adjusted returns around earnings announcements. Third, after three decades of almost nonexistent research on time-series models for quarterly earnings, the door is open again for fruitful research in this area.     

The impact of rating changes in Australian financial markets

Credit ratings have only a limited role in Australian financial regulation, so the effects of rating changes on financial prices can be observed largely free from regulatory effects. We find that bond and stock prices move in the ‘expected’ direction following both positive and negative rating announcements, although the movements are small. Announcement effects are larger for small firms, for downgrades from investment to speculative grade, and where agencies have not previously indicated the rating is under review. Overall, the results suggest that agencies are not generally viewed as consistently having access to important information that is not already in the public domain.     

The role of political uncertainty in Australian financial markets

Within the developed world, recent Australian political history is uniquely turbulent. This situation invokes indecision regarding investment decisions in both the real economy and the financial markets. This paper explores the relationship between uncertainty in Australian federal election polling and resulting financial market uncertainty. Empirical evidence suggests that increasing (decreasing) levels of uncertainty around the election result induce higher (lower) levels of uncertainty in financial markets. The effect is more pronounced as polling day approaches. Industry‐level analysis suggests that the base materials sector is most significantly affected by election uncertainty in Australia.     

Exchange rate volatility response to macroeconomic news during the global financial crisis

We investigate the volatility reaction to macroeconomic news in major currency markets during the recent global financial crisis. We first present an alternative method for determining the changes in economic states by endogenously estimating crisis thresholds. Second, we assess which macroeconomic indicator gave the earliest warning signal for the upcoming contraction. Third, we investigate whether there is a systematic change in the volatility reaction of exchange rates to news during the crisis period. We find that the estimated logistic transition function based on the housing starts data exhibits the earliest warning signal compared to other indicators. Our results suggest that although volatility response to most news indicators is larger in expansion, currency market reaction to new home sales and Fed funds rate news is larger in the crisis period. We attribute this finding to the context-specific relevance of the housing and credit sectors in the evolution of the global financial crisis.     

The impact of monetary policy candidness on Australian financial markets

In January 1990, the Reserve Bank of Australia (RBA) changed from a covert disclosure policy to an overt disclosure policy. Using a sample from January 1986 to September 2001, this paper examines the reaction of Australian financial markets to rate target changes within each of these disclosure regimes. We find significantly different announcement day responses between the two disclosure regimes for both short-term and long-term treasury securities, and equity indices. Overall, the results indicate that when monetary policy is more transparent, the market reaction is less pronounced and, therefore, we conclude that fuller disclosure of monetary policy allows investors to more optimally manage their portfolios.     

Nowcasting: The real-time informational content of macroeconomic data

A formal method is developed for evaluating the marginal impact that intra-monthly data releases have on current-quarter forecasts (nowcasts) of real gross domestic product (GDP) growth. The method can track the real-time flow of the type of information monitored by central banks because it can handle large data sets with staggered data-release dates. Each time new data are released, the nowcasts are updated on the basis of progressively larger data sets that, reflecting the unsynchronized data-release dates, have a “jagged edge” across the most recent months.     

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.     

Imperfect financial contracting and macroeconomic stability

This paper studies the implications of imperfect financial contracting for macroeconomic stability in the context of a stochastic dynamic general equilibrium model. We find that the equilibrium growth path might be indeterminate in an economy with financing frictions even if the aggregate production function exhibits constant returns to scale. Self-fulfilling expectations about the future price of capital lead to macroeconomic fluctuations in this economy.     

Estimating daily volatility in financial markets utilizing intraday data

This study proposes a new approach to the estimation of daily realised volatility in financial markets from intraday data. Initially, an examination of intraday returns on S&P 500 Index Futures reveals that returns can be characterised by heteroscedasticity and time-varying autocorrelation. After reviewing a number of daily realised volatility estimators cited in the literature, it is concluded that these estimators are based upon a number of restrictive assumptions in regard to the data generating process for intraday returns. We use a weak set of assumptions about the data generating process for intraday returns, including transaction returns, given in den Haan and Levin [den Haan, W.J., Levin, A., 1996. Inferences from parametric and non-parametric covariance matrix estimation procedures, Working paper, NBER, 195.], which allows for heteroscedasticity and time-varying autocorrelation in intraday returns. These assumptions allow the VARHAC estimator to be employed in the estimation of daily realised volatility. An empirical analysis of the VARHAC daily volatility estimator employing intraday transaction returns concludes that this estimator performs well in comparison to other estimators cited in the literature.     

Size, book-to-market ratio and macroeconomic news

Little is known about the reactions of daily returns on portfolios with different characteristics to unexpected changes in macroeconomic conditions. This paper fills this void by analyzing the reactions of daily returns on portfolios formed on size and book-to-market ratio to news about a wide range of macroeconomic variables. Returns on different portfolios not only react to different news but also react differently to the same news. Reactions of portfolios to macroeconomic news also change over the business cycle. Results are strongest for news about Employees on Nonfarm Payrolls in expansions. Both at daily and monthly frequencies, large and growth firms react differently to employment news from small and value firms in expansions but not in recessions. Differences in the sensitivities of expected future cash flows to employment news in expansions can help explain differences in the observed reactions.     

Explaining when developing countries liberalize their financial equity markets

This paper is the first to explain when countries opened their financial equity markets and is the first to explain financial liberalization using a large sample of developing countries. We test several novel hypotheses. We find that equity markets are opened earlier in countries that trade more with developed countries and that have more developed financial markets. Equity markets are opened earlier in democracies, especially if the country's leader is a civilian. Our other findings are consistent with the literature, which has found greater financial market openness in countries receiving more FDI, in richer countries, and in democracies.     

Domestic macroeconomic news and foreign interest rates

This study examines the impact of US and UK news on futures prices of US, UK, German, and Japanese government bonds. We find that certain US information has a significant influence on German, Japanese, and British interest rates, while UK information has almost no effect on foreign rates. Second, we examine the foreign term structure to investigate whether the importance of US information arises because it either signals common world-wide shocks or induces an anticipated exchange rate stabilization by foreign central banks. The evidence is mixed, except for the US CPI surprise which appears to provide information about a common world-wide shock. (G15).     

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 reaction of the Australian financial markets to the interest rate news from the Reserve Bank of Australia and the U.S. Fed

This paper provides comprehensive evidence on the impacts of the Reserve Bank of Australia's (RBA) and the U.S. Fed's target interest rate announcement news on the Australian financial markets over the period 1998–2006. The RBA's news had a significant impact on the first moments of market returns/changes in line with a priori expectations, and the conditional volatility in most of the markets was significantly higher following the news. Asymmetric news effect is also observed for the Australian interest rates where markets tended to respond more strongly to unexpected rate rises than rate falls. While the U.S. Fed's news influenced only the USD/AUD exchange rate, the Australian market volatility was significantly lower in all market segments following the Fed's news.     

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.     

Analyst forecast revisions and asset allocation in Asia-Pacific markets

An indicator derived from analyst forecast revisions was used to investigate the relationship between revisions and subsequent stock returns in 15 Asia-Pacific markets. From an investment strategy based on forecast revisions, positive abnormal returns were earned in emerging markets, and negative abnormal returns in developed markets. This pattern was stronger in the 3-year period after July 1997 than in the prior 3 years. Significant market imperfections or irrational behaviour of market participants in emerging markets are possible reasons for the results. The difference in results between subperiods could also be due to an increased reliance on near-term earnings information in stock valuation after the burst of the Asian bubble economy.     

US macroeconomic news effects around the US and European financial crises: Evidence from Brazilian and Mexican equity indices

We examine the intraday index return and volatility responses of two Latin American equity markets to US macroeconomic news releases around the periods of the US and European financial crises. We find that while index return is more sensitive than volatility to macroeconomic news in general, the five-minute Brazilian and Mexican index volatilities respond especially strongly to US news surprises, with the Brazilian response being more pronounced, especially during the expansion period. Among the macroeconomic indicators tested, FOMC rate decisions exhibit the highest impact on volatility, and there is evidence of asymmetric response to positive versus negative news.