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http://hdl.handle.net/10419/41381
  
Title:Price adjustment to news with uncertain precision
Authors:Hautsch, Nikolaus
Hess, Dieter E.
Müller, Christoph
Issue Date:2008
Series/Report no.:CFR working paper 08-04
Abstract:Bayesian learning provides the core concept of information processing in financial markets. Typically, it is assumed that market participants know perfectly the quality of released news. However, in practice, news' precision is rarely disclosed. Therefore, we extend standard Bayesian learning, suggesting traders infer news' precision from two different sources. If information is perceived to be more precise, prices react more strongly. Moreover, interactions of the different precision signals affect price responses nonlinearly. Empirical tests based on intra-day T-bond futures price reactions to employment releases confirm the model's predictions and reveal statistically and economically significant effects of news' precision.
Subjects:Bayesian learning
information quality
precision signals
macroeconomic announcements
JEL:E44
G14
Is replaced by the following version:http://hdl.handle.net/10419/70120
Document Type:Working Paper
Appears in Collections:CFR Working Papers, Centre for Financial Research (CFR), Universität Köln

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