The effect of GNP announcements on fluctuations of GNP growth

This paper is an empirical study of the degree in which perceptions affect the evolution of the economy. We study the effects of the announcements that the government makes on GNP growth. These announcements are subject to a substantial degree of noise and its accuracy improves with time. A revised number is published several years after the first announcement was made public. We consider that the final revision is the “true” value of GNP growth. We show that once announcements are taken into account, the true value of GNP growth at time t has no predictive power in determining growth at any future time. All the predictive power lies in the announcements, and not in the true level of growth. Actually, we show that the variable that determines future growth is the unexpected part of the announcements. We also show that announcements affect growth via aggregate investment.     

Announcements and credibility under inflation targeting

We inspect how inflation target announcements are instrumental in building central bank credibility and shaping inflation expectations. Investigating the role of announcements by using a time varying credibility measure, we find that both the accuracy and the frequency of inflation announcements have a positive impact on how much attention the public pays to target announcements.     

Monetary Policy Announcements,Communication, and Stock Market Liquidity

Using the high‐quality intraday transaction data from 2001–2012, we investigate changes in stock market liquidity in response to the monetary policy announcements of the Bank of Korea (BOK). We find that liquidity impairment associated with informed trading occurs prior to the announcements but it disappears subsequent to the global financial crisis. In addition, liquidity impairment appears to become more severe with insufficient experts' predictability and accuracy rather than with policy rate change itself and unscheduled announcements. Finally, the Federal Open Market Committee (FOMC) announcements, changes in the Volatility Index (VIX), and trading by foreign investors play a limited role in explaining stock market liquidity changes. Overall, results indicate that central bank communication plays a significant role in reducing liquidity impairment by enhancing the predictability of policy actions, and therefore, mitigating information asymmetry.     

Information acquisition, dissemination, and transparency of monetary policy

Abstract.  This paper examines the role of transparency in a benevolent monetary authority's policies. Each firm's payoff depends on unobservable macroeconomic conditions and firms may incur a cost to acquire private information about macroeconomic conditions. The policy authority attempts to infer the underlying macroeconomic conditions from a noisy measure of aggregate actions and makes a public announcement to inform firms of this inference. High-quality announcements provide firms the incentive not to gather private information and base actions solely on information contained in policy announcements. However, this makes the observed actions of firms less informative to the policy authority.     

Which News Moves the Euro Area Bond Market?

Abstract. This paper explores a long dataset (1999–2005) of intraday prices on German long-term bond futures and examines market responses to major macroeconomic announcements and ECB monetary policy releases. German bond markets tend to react more strongly to the surprise component in US macro releases compared with aggregated and national euro area and UK releases, and the strength of those reactions to US releases has increased over the period considered. We also document that the numbers of German unemployed workers consistently have been known to investors before official releases.     

Not just babble: Opening the black box of communication in a voluntary contribution experiment

We let subjects in a voluntary contribution experiment make non-binding numerical announcements about their “possible” contributions and, in some treatments, send written promises to contribute specific amounts. We find that announcements were responded to both by others’ announcements and by real play, for example announcements led to costly punishment when found to be misleading. We also find that adding pre-play announcements to treatments with punishment can increase efficiency by letting cost-free warnings substitute for costly punishment. The threat of punishing false announcements and promises helps reduce false signals, but only when promise statements can be sent is the effect sufficient for achieving greater efficiency.     

Financial market imperfections and monetary policy strategy

In a model with imperfect money, credit and reserve markets, we examine if an inflation-targeting central bank applying the funds rate operating procedure to indirectly control market interest rates also needs a monetary aggregate as policy instrument. We show that if private agents use information extracted from money and financial markets to form inflation expectations and if interest rate pass-through is incomplete, the central bank can use a narrow monetary aggregate and the discount interest rate as independent and complementary policy instruments to reinforce the credibility of its announcements and the role of inflation target as a nominal anchor for inflation expectations. This study shows how a monetary policy strategy combining inflation targeting and monetary targeting can be conceived to guarantee macroeconomic stability and the credibility of monetary policy. Friedman's k-percent money growth rule, which can generate dynamic instability, and two alternative stabilizing feedback monetary targeting rules are examined.     

ANNOUNCEMENT,OBSERVATION AND HONESTY IN THE VOLUNTARY CONTRIBUTIONS GAME

In this paper, we study the effect of pre‐play announcements and ex‐post observation of decisions on voluntary public good provision. We find that requiring announcements, in conjunction with making contribution decisions public, has a significantly positive effect on the average level of contributions. Those treatments, in which announcements are elicited, permit the truthfulness of subjects' announcements to be measured. We find that high contributors are more honest, the truthfulness of others is reciprocated with greater honesty and announcements are more honest when contribution decisions are observable.     

HOW DID UNCONVENTIONAL MONETARY POLICY AFFECT ECONOMIC FORECASTS?

We study how unconventional monetary policy announcements affected professional forecasters' predictions of bond rates, gross domestic product growth and inflation using data from the monthly survey by the Wall Street Journal. We find that unconventional monetary policy (UMP) announcements moved predicted bond rates in the direction the Fed intended. UMP announcements had differential impacts on forecasters' predictions; they also tended to move growth and inflation predictions in directions opposite those the Fed intended due to Fed information effects. A policy implication of our study is that the Fed should communicate economic projections to the public separately from monetary policy announcements to mitigate Fed information effects. (JEL E52, E58)     

Managerial Expectations of Synergy and the Performance of Acquiring Firms: The Contribution of Soft Data

This study examines whether the “soft” information present in merger and acquisition (M&A) announcement press releases contains incrementally valuable news relative to traditional “hard” data. Using the methodology of Loughran and McDonald [2011], we construct measures of synergy expectations and managerial optimism for more than 1,200 M&A announcements over the period 1995–2007. We find that synergy expectations are positively related to announcement period returns, longer-run performance, and the market's reaction to quarterly earnings announcements. Managerial optimism is insignificant for explaining a merger's subsequent performance. We conclude that the soft information contained in M&A announcements concerning synergy expectations can provide useful information to investors.     

TRADING AMBIGUITY: A TALE OF TWO HETEROGENEITIES

We consider markets with heterogeneously ambiguous assets and heterogeneously ambiguity-averse investors whose preferences are a parsimonious extension of the mean–variance framework. We study portfolio choice and trade upon arrival of public information, and show systematic departures from the predictions of standard theory, that occur in the direction of empirical regularities. In particular, our theory speaks to several phenomena in a unified fashion: the asset allocation puzzle, the observation that earnings announcements are followed by significant trading volume with small price change, and that increases in uncertainty are positively associated with increased trading activity and portfolio rebalancing toward safer assets.     

The financial consequences of abolishing a carbon trading system

We investigate the impact of 61 announcements of environmental regulations on the equities listed on the Australian Stock Exchange over the period 2009–2015. In particular, our study focuses on how the stock market reacts to announcements of the abolishment of carbon trading/pricing system. Using event study methodology, we assess whether these announcements create or destroy wealth of equity investors. Furthermore, we estimate changes in systematic risk following the announcements. In general, we find that the abolishment of the carbon pricing system has a positive effect on 18 sectors and the process of removing the carbon pricing system appears to affect the systematic risk of businesses leading to diamond risk structures. We also document negative reactions of polluting sectors to the announcements of green policies.     

Unexpected Share Repurchase Announcements

Abstract

Open-market stock repurchase announcements are generally perceived by the stock market as a signal of firm undervaluation. Our study shows that repurchase announcements that were preceded by SEOs of other firms in the same industry within the prior six months (namely SEO-RPs) are more likely the result of lacking investment opportunities than signaling undervaluation, especially in concentrated industries. Specifically, we find investors response negatively to SEO-RP announcements while react positively to regular repurchase announcements. The higher the intensity of SEO activities in the industry, the more negative market reaction to SEO-RP announcements. We argue that the market doesn’t expect a repurchase announcement when other rival firms are raising more capital via SEOs. These SEO-RPs represent a negative surprise to the market and lead to a downward adjustment in value of the repurchasing firms in the announcement window. In the three-year post-announcement periods, the SEO-RP firms underperform regular repurchasing firms in both stock return and operating performance. Moreover, while regular repurchasing firms gradually increase their capital expenditures, SEO-RP firms significantly reduce their capital expenditures. These findings support our arguments that repurchase announcements that immediately follow SEOs of rival firms (SEO-RPs) more likely indicate the announcing firms entering a slower growth rate with fewer investment opportunities than signal the undervaluation problem. The underperformance in stock return and operation combined with a significant reduction in capital expenditures in the post-announcement periods are consistent with this logic and also explain why the market reacts negatively to SEO-RP announcements.     

Sukuk vs. conventional bonds: A stock market perspective

The last decade witnessed a wide expansion of Islamic finance in Middle Eastern and Southeast Asian countries. Sukuk issues, which are Islamic financial instruments structured to replicate the cash flows of conventional bonds, have notably proliferated, fuelling the debate on the similarity between Islamic and conventional finance. Using an event study methodology on a sample of Malaysian listed companies, we investigate whether stock market investors react differently to the announcements of sukuk and conventional bond issues. We find that the stock market is neutral to announcements of conventional bond issues, but it reacts negatively to announcements of sukuk issues. We attribute this finding to the excess demand for Islamic investment certificates and to an adverse selection mechanism that favors sukuk issuance by lower-quality debtor companies.     

Intermarket sweep order trade size clustering around corporate announcements

Investors have different trade size preferences depending on their information advantage. Using intermarket sweep orders (ISOs), we find that investors appear to prefer using small, round lot trades around corporate events with higher announcement frequency and more predictable timing, such as earnings announcements. Around these corporate events, information is revealed, and analyst estimates are confirmed or rejected. Conversely, share repurchase announcements happen less frequently and the timing of these announcements are unpredictable. Relative to earnings announcements, share repurchase announcements create more uncertainty than they resolve. We find that when investors have less information, they tend to use costlier, larger trade size multiples. We further support the extant finding that trade sizes are smaller with the advent of high-frequency trading.     

The impact of fiscal policy announcements by the Italian government on the sovereign spread: A comparative analysis

This paper attempts to evaluate the impact of fiscal policy announcements by the Italian government on the long-term sovereign bond spread of Italy relative to Germany. After collecting data on relevant fiscal policy announcements, we perform an econometric comparative analysis between the three administrations that followed one another during the period 2009–2013. The results indicate that only fiscal policy announcements made by members of Monti's cabinet had a significant impact on the Italian spread. We argue that these findings may be partly explained by a credibility gap between Monti's technocratic administration and Berlusconi's and Letta's governments.     

Tradable permit allocations and sequential choice

This paper investigates initial allocation choices in an international tradable pollution permit market. For two sovereign governments, we compare allocation choices that are either simultaneously or sequentially announced. We show sequential allocation announcements result in higher (lower) aggregate emissions when announcements are strategic substitutes (complements). Whether allocation announcements are strategic substitutes or complements depends on the relationship between the follower’s damage function and governments’ abatement costs. When the marginal damage function is relatively steep (flat), allocation announcements are strategic substitutes (complements). For quadratic abatement costs and damages, sequential announcements provide a higher level of aggregate emissions.     

Modeling Jumps and Volatility of the Indian Stock Market Using High-Frequency Data

Recent advancements in technology have led to wide availability of high-frequency financial data. The aim of this paper is to study the behavior of the Indian stock market. In particular, we analyze the returns at 5 min interval from NSE using the index NIFTY and the stocks State Bank of India and Infosys. A non-parametric approach is taken to detect jumps in the return process. The analysis shows that index jumps relate very closely with the general market news and announcements while individual stock jumps are associated with company specific news. We find that volatility of the market is best captured by asymmetric power ARCH models.

     

Is there any common knowledge news in the Euro/Dollar market?

This paper analyzes the effect of nine categories of news announcements on the quoting activity of individual foreign exchange (FX) dealers on the Euro/Dollar exchange rate from May to October 2001. We use the double autoregressive conditional Poisson model (DACP), which is designed for time series of count data, which can be both under- or overdispersed. We find that dealers' quoting activity reacts differently to the same announcements, some increasing their activity, whilst others decrease it in response to the same news. Based on the taxonomy of Evans [Evans, M. (2002), Fx trading and exchange rate dynamics. Journal of Finance 57(6), 2405–2447.], we classify our news categories in two groups: common knowledge (CK) and non-common knowledge (NCK) news, according to their effects on quoting activity and price changes. Finally we show that scheduled news announcements are NCK news, and there is no evidence for the existence of CK news amongst our announcements, which means that dealers hardly get a consensus in interpreting the news content.     

Economic policy uncertainty in the US: Does it matter for the Euro area?

We investigate the effects of a US economic policy uncertainty shock on some Euro area macroeconomic aggregates via Structural VARs. We model the indicators of economic policy uncertainty recently developed by  Baker et al. (2013) jointly with the aggregate price indexes and alternative indicators of the business cycle for the two above indicated economic areas. According to our SVARs, a one standard deviation shock to US economic policy uncertainty leads to a statistically significant fall in the European industrial production and prices of −0.12% and −0.06%, respectively. The contribution of the US uncertainty shock on the European aggregates is shown to be quantitatively larger than the one exerted by an Euro area-specific uncertainty shock.