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Something in the air: Information density, news surprises, and price jumps

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  • Füss, Roland
  • Grabellus, Markus
  • Mager, Ferdinand
  • Stein, Michael

Abstract

This paper introduces a new information density indicator to provide a more comprehensive understanding of price reactions to news and, more specifically, to the sources of jumps in financial markets. Our information density indicator, which measures the abnormal amount of news before scheduled macroeconomic announcements, is significantly related to the likelihood of price jumps and is independent of the magnitude of news surprises or pre-announcement trading activity. We therefore interpret this variable as a measure of additional uncertainty in the market, inducing diffuse beliefs among investors, which are resolved through macroeconomic news as “hard” facts.

Suggested Citation

  • Füss, Roland & Grabellus, Markus & Mager, Ferdinand & Stein, Michael, 2018. "Something in the air: Information density, news surprises, and price jumps," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 53(C), pages 50-75.
    • Handle: RePEc:eee:intfin:v:53:y:2018:i:c:p:50-75
    DOI: 10.1016/j.intfin.2017.09.011
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    3. Ederington, Louis & Guan, Wei & Yang, Lisa (Zongfei), 2019. "The impact of the U.S. employment report on exchange rates," Journal of International Money and Finance, Elsevier, vol. 90(C), pages 257-267.

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    More about this item

    Keywords

    Information flow; Jump identification; Macroeconomic announcements; Price discovery process; Price jumps;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • 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
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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