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

  • Nikolaus Hautsch

    ()

    (University of Copenhagen)

  • Dieter Hess

    ()

    (University of Cologne)

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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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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