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The processing of non-anticipated information in financial markets: Analyzing the impact of surprises in the employment report

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Author Info

  • Nikolaus Hautsch

    ()
    (University of Copenhagen)

  • Dieter Hess

    ()
    (University of Cologne)

Abstract

This paper delineates the simultaneous impact of non-anticipated information on mean and variance of the intraday return process by including appropriate variables accounting for the news flow into both the mean and the variance function. This allows us to differentiate between the consistent price reaction to surprising news and the traders’ uncertainty about the precise price impact of this information. Focussing on the US employment report, we find that headline information is almost instantaneously incorporated into T-bond futures prices. Nevertheless, large surprises, and ’bad’ news in particular, create considerable uncertainty. In contrast, if surprises in related headlines cross-validate each other, less room for differences of opinion is left, and hence volatility is decreased.

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File URL: http://cofe.uni-konstanz.de/Papers/dp02_06.pdf
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Bibliographic Info

Paper provided by Center of Finance and Econometrics, University of Konstanz in its series CoFE Discussion Paper with number 02-06.

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Length: 25 pages
Date of creation: Feb 2002
Date of revision:
Handle: RePEc:knz:cofedp:0206

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Related research

Keywords: high-frequency data; information processing; macroeconomic announcements; Treasury bond futures; trading process; volatility;

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References

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  1. Pindyck, Robert S, 1984. "Risk, Inflation, and the Stock Market," American Economic Review, American Economic Association, vol. 74(3), pages 335-51, June.
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Citations

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Cited by:
  1. Hautsch, Nikolaus & Hess, Dieter & Müller, Christoph, 2012. "Price adjustment to news with uncertain precision," Journal of International Money and Finance, Elsevier, vol. 31(2), pages 337-355.
  2. Hautsch, Nikolaus & Hess, Dieter & Veredas, David, 2011. "The impact of macroeconomic news on quote adjustments, noise, and informational volatility," Journal of Banking & Finance, Elsevier, vol. 35(10), pages 2733-2746, October.
  3. Entorf, Horst & Steiner, Christian, 2006. "Makroökonomische Nachrichten und die Reaktion des 15-Sekunden-DAX: Eine Ereignisstudie zur Wirkung der ZEW-Konjunkturprognose," Darmstadt Discussion Papers in Economics 36782, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL).
  4. Gropp, Reint & Kadareja, Arjan, 2006. "Stale information, shocks and volatility," Working Paper Series 0686, European Central Bank.
  5. Grothe, Magdalena, 2010. "Price and trading response to public information," Working Paper Series 1177, European Central Bank.
  6. Jér�me Coffinet & Sylvain Gouteron, 2010. "Euro-Area Yield Curve Reaction to Monetary News," German Economic Review, Verein für Socialpolitik, vol. 11, pages 208-224, 05.
  7. Chiou-Wei, Song-Zan & Linn, Scott C. & Zhu, Zhen, 2014. "The response of U.S. natural gas futures and spot prices to storage change surprises: Fundamental information and the effect of escalating physical gas production," Journal of International Money and Finance, Elsevier, vol. 42(C), pages 156-173.
  8. Ferdinand Graf, 2011. "Mechanically Extracted Company Signals and their Impact on Stock and Credit Markets," Working Paper Series of the Department of Economics, University of Konstanz 2011-18, Department of Economics, University of Konstanz.

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