Economic News and Bond Prices: Evidence from the U.S. Treasury Market

Balduzzi, Pierluigi; Elton, Edwin J.; Green, T. Clifton

doi:10.2307/2676223

Cited by 787 publications

(645 citation statements)

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“…The 5-minute frequency is robust to microstructure noise and offers sufficiently high frequency information to properly evaluate the impact of specific events. Moreover, this frequency is consistent with previous seminal contributions such as [5] and [13].…”

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confidence: 80%

Macroannouncements, bond auctions and rating actions in the European government bond spreads

Boffelli

Urga

2015

Journal of International Money and Finance

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This paper investigates the impact of macroannouncements, government bond auctions and rating actions on the 10-year government bond spreads for Belgium, France, Italy, the Netherlands, Spain with respect to Germany. Using a unique tick-by-tick dataset over 1/02/2009-05/31/2012, we identify the impact of the three drivers via jump and cojump detection procedures. Disentangling the pre-from the post-announcement effects, real economy and forward looking news releases from US and Euro area, country specific Spanish and German macroannouncements, and auctions hold in distressed countries such Italy and Spain have a statistically and economically significant effect.No role is played by rating actions.Keywords: Jumps, Cojumps,Government Bond Spreads, Macroannouncements, Government Bond Auctions, Rating Actions.J.E.L. Classification Numbers: C58, C12, H63, G24.Europe is under stress and integration among European countries seems more fragile than ever.Starting from the subprime crisis in 2007, markets are more aware of the differences between European countries, and this sentiment is reflected, amongst others, in increasing differentials of government bond yields. In 2008 and 2009, government bond spreads became sizable but it was in 5 2010 and 2011 that spreads substantially increase, reaching levels even higher than those experienced in the pre-Euro era. It was just after the famous Mario Draghi's "whatever it takes" in July 2012 that a more normal situation on government bond markets was restored. The European sovereign debt $ We wish to thank participants in the 12th Oxmetrics User Conference (Cass, 3-4 September 2012), in particular Siem Koopman, Sebastien Laurent, and Bill Lyons for useful suggestions. We thank Michael J. Flemming and Jan Novotny for having provided very useful comments on a previous version of the paper. The usual disclaimer applies. Special thanks to Morningstar, in particular to Richard Barden, for having made available the rich data set used in this paper. Simona Boffelli acknowledges financial support from the Centre for Econometric Analysis of Cass Business School.* Centre for Econometric Analysis, Faculty of Finance, Cass Business School, City University London, 106 Bunhill Row, London, EC1Y 8TZ, UK and Bergamo University, Italy. G.Urga@city.ac.uk, Tel: +44 (0)20 7040 8698, Fax: +44 (0)20 7040 8881. Preprint submitted to Journal of International Money and FinanceDecember 22, 2014 crisis involving, although at different extents, all the peripheral countries have questioned the much celebrated markets' self-regulatory power as well as the ability of policy makers and regulators to 10 adopt stability measures and stimulate economic growth. Thus, understanding which factors drive sovereign risk is particularly timely also for the macroeconomic consequences of the comovements associated to these factors. For instance, higher spreads deteriorate borrowing capabilities and market confidence which simultaneously impact on consumption and investment. The way to ameliorate the effects of th...

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confidence: 80%

Macroannouncements, bond auctions and rating actions in the European government bond spreads

Boffelli

Urga

2015

Journal of International Money and Finance

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“…While this may be expected in case of quantitative information on important economic statistics, such as those regularly released by important institutional agencies (e.g., Stickel and Verrecchia (1994); Balduzzi et al (2001); Kim and Sheen (2001); Pritamani and Singal (2001), Brenner et al (2009);Tetlock (2010Tetlock ( , 2011, it is less likely to find a positive impact of qualitative information, such as journalists' opinion or report of market rumors, which is subjective (Coval and Shumway (2001);Schindler (2007)). Nevertheless, empirical evidence is also growing on this.…”

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confidence: 99%

Financial Press and Stock Markets in Times of Crisis

Casarin

Squazzoni²

2012

SSRN Journal

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This paper investigates the relationship between negative news in financial newspapers and stock markets in times of global crisis, such as the 2008/2009 period. We analysed one year of front page banner headlines of three financial newspapers, such as the Wall Street Journal, Financial Times, and Il Sole24ore and created an index of bad news at a daily base. We examined the influence of bad news both on market volatility and dynamic correlation of American, Britain and Italian stock markets to look at the impact of bad news on global investment strategies. Our results show that press and markets co-influenced each other in generating market volatility. The three newspapers showed significant differences in their stance on the crisis, with Financial Times more pessimistic. Our results also show that Wall Street Journal bad news had higher predictability value for the correlation between US and the foreign markets. This confirms the international influence of Wall Street Journal. Financial press and stock markets in times of crisis KeywordsRoberto Casarin † Flaminio Squazzoni ‡ † University Ca' Foscari of Venice ‡ University of Brescia May 16, 2012Abstract This paper investigates the relationship between negative news in financial newspapers and stock markets in times of global crisis, such as the 2008/2009 period. We analysed one year of front page banner headlines of three financial newspapers, such as the Wall Street Journal, Financial Times, and Il Sole24ore and created an index of bad news at a daily base. We examined the influence of bad news both on market volatility and dynamic correlation of American, Britain and Italian stock markets to look at the impact of bad news on global investment strategies. Our results show that press and markets co-influenced each other in generating market volatility. The three newspapers showed significant differences in their stance on the crisis, with Financial Times more pessimistic. Our results also show that Wall Street Journal bad news had higher predictability value for the correlation between US and the foreign markets. This confirms the international influence of Wall Street Journal.

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“…13. The quality of the MMS data as measures of expectations has been verified by previous authors-see, for example, Balduzzi, Elton, and Green (2001) and Andersen et al (2003). 14.…”

Section: Macroeconomic Data Releasesmentioning

confidence: 71%

DOES INFLATION TARGETING ANCHOR LONG-RUN INFLATION EXPECTATIONS? EVIDENCE FROM THE U.S., UK, AND SWEDEN⁴

Gürkaynak

Levin

Swanson

2010

Journal of the European Economic Association

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We investigate the extent to which inflation expectations have been more firmly anchored in the United Kingdom-a country with an explicit inflation target-than in the United States-a country with no such target-using the difference between far-ahead forward rates on nominal and inflation-indexed bonds as a measure of compensation for expected inflation and inflation risk at long horizons. We show that far-ahead forward inflation compensation in the U.S. exhibits substantial volatility, especially at low frequencies, and displays a highly significant degree of sensitivity to economic news. Similar patterns are evident in the UK prior to 1997, when the Bank of England was not independent, but have been strikingly absent since the Bank of England gained independence in 1997. Our findings are further supported by comparisons of dispersion in longer-run inflation expectations of professional forecasters and by evidence from Sweden, another inflation-targeting country with a relatively long history of inflation-indexed bonds. Our results support the view that an explicit and credible inflation target helps to anchor the private sector's views regarding the distribution of long-run inflation outcomes.

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Economic News and Bond Prices: Evidence from the U.S. Treasury Market

Cited by 787 publications

References 29 publications

Macroannouncements, bond auctions and rating actions in the European government bond spreads

Macroannouncements, bond auctions and rating actions in the European government bond spreads

Financial Press and Stock Markets in Times of Crisis

DOES INFLATION TARGETING ANCHOR LONG-RUN INFLATION EXPECTATIONS? EVIDENCE FROM THE U.S., UK, AND SWEDEN⁴

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Economic News and Bond Prices: Evidence from the U.S. Treasury Market

Cited by 787 publications

References 29 publications

Macroannouncements, bond auctions and rating actions in the European government bond spreads

Macroannouncements, bond auctions and rating actions in the European government bond spreads

Financial Press and Stock Markets in Times of Crisis

DOES INFLATION TARGETING ANCHOR LONG-RUN INFLATION EXPECTATIONS? EVIDENCE FROM THE U.S., UK, AND SWEDEN4

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DOES INFLATION TARGETING ANCHOR LONG-RUN INFLATION EXPECTATIONS? EVIDENCE FROM THE U.S., UK, AND SWEDEN⁴