Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/25442
Authors: 
Andersen, Torben G.
Bollerslev, Tim
Diebold, Francis X.
Vega, Clara
Year of Publication: 
2004
Series/Report no.: 
CFS Working Paper 2004/19
Abstract: 
We characterize the response of U.S., German and British stock, bond and foreign exchange markets to real-time U.S. macroeconomic news. Our analysis is based on a unique data set of high-frequency futures returns for each of the markets. We find that news surprises produce conditional mean jumps; hence high-frequency stock, bond and exchange rate dynamics are linked to fundamentals. The details of the linkages are particularly intriguing as regards equity markets. We show that equity markets react differently to the same news depending on the state of the economy, with bad news having a positive impact during expansions and the traditionally-expected negative impact during recessions. We rationalize this by temporal variation in the competing "cash flow" and "discount rate" effects for equity valuation. This finding helps explain the time-varying correlation between stock and bond returns, and the relatively small equity market news effect when averaged across expansions and recessions. Lastly, relying on the pronounced heteroskedasticity in the high-frequency data, we document important contemporaneous linkages across all markets and countries over-and-above the direct news announcement effects.
Subjects: 
Asset Pricing
Macroeconomic News Announcements
Financial Market Linkages
Market Microstructure
High-Frequency Data
Survey Data
Asset Return Volatility
Forecasting
JEL: 
F3
F4
G1
C5
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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