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Central Bank Policy Announcements and Changes in Trading Behavior: Evidence from Bond Futures High Frequency Price Data

Author

Listed:
  • Koichiro Kamada

    (Deputy Director-General, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: kouichirou.kamada@boj.or.jp))

  • Tetsuo Kurosaki

    (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: tetsuo.kurosaki@boj.or.jp))

  • Ko Miura

    (Research and Statistics Department, Bank of Japan (currently, University of Wisconsin-Madison))

  • Tetsuya Yamada

    (Director and Senior Economist, Institute for Monetary and Economic Studies (currently, Financial System and Bank Examination Department), Bank of Japan, (E-mail: tetsuya.yamada@boj.or.jp))

Abstract

We present a theoretical model to explain how financial traders incorporate public and private information into security prices. We explain that the model enables us to simultaneously identify when public information caused surprises and how large an impact it had on the market. By applying the model to the tick-by-tick data on Japanese government bond futures prices, we show that the Bank of Japan's introduction of quantitative and qualitative monetary easing was one of the most surprising episodes during the period from 2005 to 2016. We also show that the sensitivity to the Bank's announcements has strengthened since the introduction of the negative interest rate policy, whereas the sensitivity to economic indicators and surveys has weakened substantially.

Suggested Citation

  • Koichiro Kamada & Tetsuo Kurosaki & Ko Miura & Tetsuya Yamada, 2018. "Central Bank Policy Announcements and Changes in Trading Behavior: Evidence from Bond Futures High Frequency Price Data," IMES Discussion Paper Series 18-E-02, Institute for Monetary and Economic Studies, Bank of Japan.
    • Handle: RePEc:ime:imedps:18-e-02
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    References listed on IDEAS

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    Cited by:

    1. Keiichi Goshima & Yusuke Kumano, 2018. "Monetary Policy Announcement and Algorithmic News Trading in the Foreign Exchange Market," IMES Discussion Paper Series 18-E-13, Institute for Monetary and Economic Studies, Bank of Japan.

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    More about this item

    Keywords

    Central bank announcements; Government bond futures; Herding behavior; Information efficiency; Market microstructure;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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