IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/2675.html
   My bibliography  Save this paper

The Impact Of Economic News On Financial Markets

Author

Listed:
  • Parker, John

Abstract

This paper analyzes the impact of economic news, that is, the difference between economic announcements and what was anticipated, on financial markets. The three contributions of this paper are, first, the market expectation is derived from economic derivative prices that allow a full distribution for the market expectation to be derived. Economic derivatives data better predict financial market movements and also allow for testing whether there is information in the high moments of the distribution. Second, high frequency financial data allows us to test for the optimal window and discover how long it takes financial markets to digest and react to news. Finally, by using a U.S. and a European economic announcement and a wide range of financial markets, this paper compares announcements to show which are important for which markets. I find that high frequency financial data leads to a much bigger and more significant news announcement effect over previous studies that used end-of day data. Further, financial markets react very quickly to news. Unlike other studies that have assumed a 25-30 minute window, I have demonstrated that the announcement window is often as little as just one minute. Using the richness of the economic derivatives-based expectations data I determine when higher moments of the expectations distribution are useful in determining the announcement effect. I also show in which markets, and for which announcements, good news and bad news have asymmetric effects; and, in which markets are most responsive to which announcements. Finally, I have highlighted some of the interesting results that traders or risk managers might want to delve into in more detail.

Suggested Citation

  • Parker, John, 2007. "The Impact Of Economic News On Financial Markets," MPRA Paper 2675, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:2675
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/2675/1/MPRA_paper_2675.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Goodhart, C A E, et al, 1993. "New Effects in a High-Frequency Model of the Sterling-Dollar Exchange Rate," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(1), pages 1-13, Jan.-Marc.
    2. Refet Gürkaynak & Justin Wolfers, 2005. "Macroeconomic Derivatives: An Initial Analysis of Market-Based Macro Forecasts, Uncertainty, and Risk," NBER Chapters, in: NBER International Seminar on Macroeconomics 2005, pages 11-50, National Bureau of Economic Research, Inc.
    3. Faust, Jon & Rogers, John H. & Wang, Shing-Yi B. & Wright, Jonathan H., 2007. "The high-frequency response of exchange rates and interest rates to macroeconomic announcements," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1051-1068, May.
    4. Pierluigi Balduzzi & Edwin J. Elton & T. Clifton Green, 1996. "Economic News and the Yield Curve: Evidence From the U.S. Treasury Market," New York University, Leonard N. Stern School Finance Department Working Paper Seires 96-13, New York University, Leonard N. Stern School of Business-.
    5. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2003. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange," American Economic Review, American Economic Association, vol. 93(1), pages 38-62, March.
    6. Balduzzi, Pierluigi & Elton, Edwin J. & Green, T. Clifton, 2001. "Economic News and Bond Prices: Evidence from the U.S. Treasury Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 36(4), pages 523-543, December.
    7. Fair, Ray C., 2003. "Shock effects on stocks, bonds, and exchange rates," Journal of International Money and Finance, Elsevier, vol. 22(3), pages 307-341, June.
    8. Suk-Joong Kim & Jeffrey Sheen, 2018. "Minute-by-Minute Dynamics of the Australian Bond Futures Market in Response to New Macroeconomic Information," World Scientific Book Chapters, in: Information Spillovers and Market Integration in International Finance Empirical Analyses, chapter 7, pages 203-227, World Scientific Publishing Co. Pte. Ltd..
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. José Carlos Nogueira Cavalcante Filho & Edson Daniel Lopes Gonçalves, 2015. "Jump Diffusion Modelling for the Brazilian Short-Term Interest Rate," Brazilian Business Review, Fucape Business School, vol. 12(1), pages 80-103, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Roberto Rigobon & Brian Sack, 2008. "Noisy Macroeconomic Announcements, Monetary Policy, and Asset Prices," NBER Chapters, in: Asset Prices and Monetary Policy, pages 335-370, National Bureau of Economic Research, Inc.
    2. Michael Ehrmann & Marcel Fratzscher & Roberto Rigobon, 2011. "Stocks, bonds, money markets and exchange rates: measuring international financial transmission," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(6), pages 948-974, September.
    3. Ana Lasaosa, 2007. "Learning the Rules of the New Game? Comparing the Reactions in Financial Markets to Announcements before and after the Bank of England's Operational Independence," Ekonomia, Cyprus Economic Society and University of Cyprus, vol. 10(1), pages 18-41, Summer.
    4. Kjellberg, David, 2006. "Measuring Expectations," Working Paper Series 2006:9, Uppsala University, Department of Economics.
    5. Santos, Francisco Luna & Garcia, Márcio Gomes Pinto & Medeiros, Marcelo Cunha, 2016. "The High Frequency Impact of Macroeconomic Announcements in the Brazilian Futures Markets," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 36(2), November.
    6. Thomas Schuster, 2003. "News Events and Price Movements. Price Effects of Economic and Non-Economic Publications in the News Media," Finance 0305009, University Library of Munich, Germany.
    7. Luca Brugnolini & Antonello D’Agostino & Alex Tagliabracci, 2021. "Is Anything Predictable in Market-Based Surprises?," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 7(3), pages 387-410, November.
    8. Andersson, Magnus & Hansen, Lars Jul & Sebestyén, Szabolcs, 2006. "Which news moves the euro area bond market?," Working Paper Series 631, European Central Bank.
    9. repec:bla:germec:v:10:y:2009:i::p:1-31 is not listed on IDEAS
    10. Andersen, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Vega, Clara, 2007. "Real-time price discovery in global stock, bond and foreign exchange markets," Journal of International Economics, Elsevier, vol. 73(2), pages 251-277, November.
    11. Faust, Jon & Rogers, John H. & Wang, Shing-Yi B. & Wright, Jonathan H., 2007. "The high-frequency response of exchange rates and interest rates to macroeconomic announcements," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1051-1068, May.
    12. Stefan Mittnik & Nikolay Robinzonov & Klaus Wohlrabe, 2013. "The Micro Dynamics of Macro Announcements," CESifo Working Paper Series 4421, CESifo.
    13. Rosa, Carlo, 2013. "Market efficiency broadcasted live: ECB code words and euro exchange rates," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 167-178.
    14. Anne Opschoor & Michel van der Wel & Dick van Dijk & Nick Taylor, 2011. "On the Effects of Private Information on Volatility," Tinbergen Institute Discussion Papers 11-077/4, Tinbergen Institute.
    15. Paolo Pasquariello & Clara Vega, 2007. "Informed and Strategic Order Flow in the Bond Markets," The Review of Financial Studies, Society for Financial Studies, vol. 20(6), pages 1975-2019, November.
    16. Ghent, Andra, 2007. "Why do markets react badly to good news? Evidence from Fed Funds Futures," MPRA Paper 1708, University Library of Munich, Germany.
    17. Deniz Erdemlioglu & Sébastien Laurent & Christopher J. Neely, 2013. "Econometric modeling of exchange rate volatility and jumps," Chapters, in: Adrian R. Bell & Chris Brooks & Marcel Prokopczuk (ed.), Handbook of Research Methods and Applications in Empirical Finance, chapter 16, pages 373-427, Edward Elgar Publishing.
    18. Tamim Bayoumi & Andrew Swiston, 2010. "The Ties that Bind: Measuring International Bond Spillovers Using Inflation-Indexed Bond Yields," IMF Staff Papers, Palgrave Macmillan, vol. 57(2), pages 366-406, June.
    19. Dungey, Mardi & McKenzie, Michael & Smith, L. Vanessa, 2009. "Empirical evidence on jumps in the term structure of the US Treasury Market," Journal of Empirical Finance, Elsevier, vol. 16(3), pages 430-445, June.
    20. Cyril May & Greg Farrell & Jannie Rossouw, 2018. "Do Monetary Policy Announcements Affect Exchange Rate Returns and Volatility of Returns? Some Evidence from High‐Frequency Intra‐Day South African Data," South African Journal of Economics, Economic Society of South Africa, vol. 86(3), pages 308-338, September.
    21. Marlene Amstad & Andreas Fischer, 2005. "Shock Identification of Macroeconomic Forecasts based on Daily Panels," Working Papers 05.02, Swiss National Bank, Study Center Gerzensee.

    More about this item

    Keywords

    Economic Derivatives; Economic Announcements; News; Financial Markets; Market Expectations; Real-Time Financial Data;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:2675. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.