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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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  • Nikolaus Hautsch
  • Dieter Hess

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. JEL classification codes: E44, G14.

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  • Nikolaus Hautsch & Dieter Hess, 2002. "The Processing of Non-Anticipated Information in Financial Markets: Analyzing the Impact of Surprises in the Employment Report," Review of Finance, European Finance Association, vol. 6(2), pages 133-161.
    • Handle: RePEc:oup:revfin:v:6:y:2002:i:2:p:133-161.
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    File URL: http://hdl.handle.net/10.1023/A:1020146630261
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    Cited by:

    1. 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 159, Darmstadt University of Technology, Department of Law and Economics.
    2. Grothe, Magdalena, 2010. "Price and trading response to public information," Working Paper Series 1177, European Central Bank.
    3. 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.
    4. Jérôme Coffinet & Sylvain Gouteron, 2010. "Euro‐Area Yield Curve Reaction to Monetary News," German Economic Review, Verein für Socialpolitik, vol. 11(2), pages 208-224, May.
    5. 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.
    6. Reint Gropp & Arjan Kadareja, 2012. "Stale Information, Shocks, and Volatility," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(6), pages 1117-1149, September.
    7. Steiner, Christian & Groß, Anne & Entorf, Horst, 2009. "Return and Volatility Reactions to Monthly Announcements of Business Cycle Forecasts: An Event Study Based on High-Frequency Data," ZEW Discussion Papers 09-010, ZEW - Leibniz Centre for European Economic Research.
    8. 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.
    9. Hautsch, Nikolaus & Hess, Dieter, 2007. "Bayesian Learning in Financial Markets: Testing for the Relevance of Information Precision in Price Discovery," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(1), pages 189-208, March.
    10. Jérôme Coffinet & Sylvain Gouteron, 2010. "Euro‐Area Yield Curve Reaction to Monetary News," German Economic Review, Verein für Socialpolitik, vol. 11(2), pages 208-224, May.
    11. repec:jns:jbstat:v:227:y:2007:i:1:p:3-26 is not listed on IDEAS
    12. Mondria, Jordi & Wang, Xin & Wu, Thomas, 2021. "Familiarity and Surprises in International Financial Markets: Bad news travels like wildfire; good news travels slow," Journal of International Money and Finance, Elsevier, vol. 115(C).
    13. Sylwia Nowak, 2008. "How Do Public Announcements Affect The Frequency Of Trading In U.S. Airline Stocks?," CAMA Working Papers 2008-38, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    14. 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.
    15. Cecilia Frale & David Veredas, 2008. "A Monthly Volatility Index for the US Economy," Working Papers ECARES 2008-008, ULB -- Universite Libre de Bruxelles.
    16. Jordi Mondria & Thomas Wu, 2012. "Familiarity and Surprises in International Financial Markets: Bad news travels like wildfire, good news travels slow," 2012 Meeting Papers 50, Society for Economic Dynamics.
    17. Axel Groß-Klußmann & Nikolaus Hautsch, 2009. "Quantifying High-Frequency Market Reactions to Real-Time News Sentiment Announcements," SFB 649 Discussion Papers SFB649DP2009-063, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    18. Entorf Horst & Steiner Christian, 2007. "Makroökonomische Nachrichten und die Reaktion des 15-Sekunden-DAX: Eine Ereignisstudie zur Wirkung der ZEW-Konjunkturprognose / Announcement of Business Cycle Forecasts and the Reaction of the German ," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 227(1), pages 3-26, February.
    19. Neeraj J. Gupta & Vitaliy Strohush & Reilly White, 2019. "Investor reaction to simultaneous news releases: unemployment vs. earnings," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 43(4), pages 735-749, October.
    20. Chiou-Wei, Song-Zan & Chen, Sheng-Hung & Zhu, Zhen, 2020. "Natural gas price, market fundamentals and hedging effectiveness," The Quarterly Review of Economics and Finance, Elsevier, vol. 78(C), pages 321-337.

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    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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