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30-Day Interbank futures: Investigating the process of price discovery following RBA cash target rate announcements

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  • Smales, Lee A.

Abstract

The article examines microstructure issues in the Australian Interbank futures market by analyzing the price adjustment process following scheduled cash target rate announcements by the Reserve Bank of Australia. In characterizing the market response, three distinct stages of price formation and liquidity provision are identified. Market expectations around the RBA decision are derived explicitly from 30-Day Interbank futures. The first trade following the RBA decision occurs after 220s on average, and after 234s (1.73 trades) the market has adjusted to the theoretical settlement price. Deviations from theoretical prices post-announcement are common, particularly when a large amount of uncertainty exists around the RBA decision. The potentially costly issue of stale price quotes is also addressed.

Suggested Citation

  • Smales, Lee A., 2012. "30-Day Interbank futures: Investigating the process of price discovery following RBA cash target rate announcements," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(4), pages 1006-1023.
    • Handle: RePEc:eee:intfin:v:22:y:2012:i:4:p:1006-1023
    DOI: 10.1016/j.intfin.2011.12.004
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    Cited by:

    1. McCredie, Bronwyn & Docherty, Paul & Easton, Steve & Uylangco, Katherine, 2014. "The differential impact of monetary policy announcements and explanatory minutes releases on the Australian interest rate futures market," Pacific-Basin Finance Journal, Elsevier, vol. 29(C), pages 261-271.
    2. Ersan, Oguz & Simsir, Serif Aziz & Simsek, Koray D. & Hasan, Afan, 2021. "The speed of stock price adjustment to corporate announcements: Insights from Turkey," Emerging Markets Review, Elsevier, vol. 47(C).
    3. Lee A. Smales, 2013. "Impact Of Macroeconomic Announcements On Interest Rate Futures: High-Frequency Evidence From Australia," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 36(3), pages 371-388, September.
    4. Smales, Lee A., 2016. "Order aggressiveness of different broker-types in response to monetary policy news," Pacific-Basin Finance Journal, Elsevier, vol. 40(PB), pages 367-383.
    5. McCredie, Bronwyn & Docherty, Paul & Easton, Steve & Uylangco, Katherine, 2016. "The channels of monetary policy triggered by central bank actions and statements in the Australian equity market," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 46-61.

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    More about this item

    Keywords

    Target rate announcement; Futures markets; Price discovery; RBA;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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