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Real-Time Price Discovery in Global Stock, Bond and Foreign Exchange Markets

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Author Info

  • Torben G. Andersen
  • Tim Bollerslev
  • Francis X. Diebold
  • Clara Vega

    ()
    (School of Economics and Management, University of Aarhus, Denmark and CREATES)

Abstract

Using a unique high-frequency futures dataset, we characterize the response of U.S., German and British stock, bond and foreign exchange markets to real-time U.S. macroeconomic news. We find that news produces conditional mean jumps, hence high-frequency stock, bond and exchange rate dynamics are linked to fundamentals. Equity markets, moreover, react differently to news depending on the stage of the business cycle, which explains the low correlation between stock and bond returns when averaged over the cycle. Hence our results qualify earlier work suggesting that bond markets react most strongly to macroeconomic news, in particular, when conditioning on the state of the economy, the equity and foreign exchange markets appear equally responsive. Finally, we also document important contemporaneous links across all markets and countries, even after controlling for the effects of macroeconomic news.

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Bibliographic Info

Paper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2007-20.

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Length: 36
Date of creation: 16 Aug 2007
Date of revision:
Handle: RePEc:aah:create:2007-20

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Web page: http://www.econ.au.dk/afn/

Related research

Keywords: Asset Pricing; Macroeconomic News Announcements; Financial Market Linkages; Market Microstructure; High-Frequency Data; Survey Data; Asset Return Volatility; Forecasting;

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  1. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2002. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange?," Center for Financial Institutions Working Papers, Wharton School Center for Financial Institutions, University of Pennsylvania 02-23, Wharton School Center for Financial Institutions, University of Pennsylvania.
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