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on Market Microstructure |
| By: | Bea Canto (Watson Wyatt Brans & Co.); Roman Kräussl (Vrije Universiteit Amsterdam and CFS) |
| Abstract: | This study analyzes the short-term dynamic spillovers between the futures returns on the DAX, the DJ Eurostoxx 50 and the FTSE 100. It also examines whether economic news is one source of international stock return co-movements. In particular, we test whether stock market interdependencies are attributable to reactions of foreign traders to public economic information. Moreover, we analyze whether cross-market linkages remain the same or whether they do increase during periods in which economic news is released in one of the countries. Our main results can be summarized as follows: (i) there are clear short term international dynamic interactions among the European stock futures markets; (ii) foreign economic news affects domestic returns; (iii) futures returns adjust to news immediately; (iv) announcement timing of macroeconomic news matters; (v) stock market dynamic interactions do not increase at the time of the release of economic news; (vi) foreign investors react to the content of the news itself more than to the response of the domestic market to the national news; and (vii) contemporaneous correlation between futures returns changes at the time of macroeconomic releases. |
| Keywords: | Market Microstructure,Stock Market Dynamic Interactions, Macroeconomic News, High Frequency Data, VAR Modeling, Variance Decomposition |
| JEL: | G14 G15 |
| Date: | 2006–12–06 |
| URL: | http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200625&r=mst |
| By: | Torben G. Andersen; Luca Benzoni |
| Abstract: | We investigate whether bonds span the volatility risk in the U.S. Treasury market, as predicted by most 'affine' term structure models. To this end, we construct powerful and model-free empirical measures of the quadratic yield variation for a cross-section of fixed-maturity zero-coupon bonds ("realized yield volatility") through the use of high-frequency data. We find that the yield curve fails to span yield volatility, as the systematic volatility factors are largely unrelated to the cross-section of yields. We conclude that a broad class of affine diffusive, Gaussian-quadratic and affine jump-diffusive models is incapable of accommodating the observed yield volatility dynamics. An important implication is that the bond markets per se are incomplete and yield volatility risk cannot be hedged by taking positions solely in the Treasury bond market. We also advocate using the empirical realized yield volatility measures more broadly as a basis for specification testing and (parametric) model selection within the term structure literature. |
| JEL: | C14 C32 G12 |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12962&r=mst |
| By: | Kathryn M.E. Dominguez; Freyan Panthaki |
| Abstract: | Intervention operations are used by governments to manage their exchange rates but officials rarely confirm their presence in the market, leading inevitably to erroneous reports in the financial press. There are also reports of what we term, unrequited interventions, interventions that the market expects but do not materialize. In this paper we examine the effects of various types of intervention news on intra-day exchange rate behavior. We find that unrequited interventions have a statistically significant influence on returns, volatility and order flow, suggesting that the expectation of intervention, even when governments do not intervene, can affect currency values. |
| JEL: | F3 F31 G14 G15 |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12953&r=mst |