Domestic Or U.S. News: What Drives Canadian Financial Markets?
AbstractUsing a GARCH model, we study the effects of Canadian and U.S. central bank communication and macroeconomic news on Canadian bond, stock, and foreign exchange market returns and volatility. First, central bank communication and macro news from both countries have an impact on Canadian financial markets. Second, Canadian central bank communication is more relevant than its U.S. counterpart, whereas in the case of macro news, that originating from the United States dominates. Third, we find evidence that the impact of Canadian news reaches its maximum when the Canadian target rate departs from the Federal Funds target rate (2002â2004) and thereafter. The introduction of fixed announcement dates (FAD) initially does not cause a noticeable break in the data. Finally, Canadian and U.S. target rate changes lead to higher price volatility, and so does other U.S. news. Other Canadian news, however, lowers price volatility.
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Bibliographic InfoArticle provided by Western Economic Association International in its journal Economic Inquiry.
Volume (Year): 50 (2012)
Issue (Month): 3 (07)
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Other versions of this item:
- Bernd Hayo & Matthias Neuenkirch, 2009. "Domestic or U.S. News: What Drives Canadian Financial Markets?," MAGKS Papers on Economics 200908, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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