New Economics Papers
on Market Microstructure
Issue of 2008‒08‒06
two papers chosen by
Thanos Verousis

  1. Information Shocks, Jumps, and Price Discovery -- Evidence from the U.S. Treasury Market By George J. Jiang; Ingrid Lo; Adrien Verdelhan
  2. Spurious Regressions in Technical Trading: Momentum or Contrarian? By Mototsugu Shintani; Tomoyoshi Yabu; and Daisuke Nagakura

  1. By: George J. Jiang; Ingrid Lo; Adrien Verdelhan
    Abstract: We examine large price changes, known as jumps, in the U.S. Treasury market. Using recently developed statistical tools, we identify price jumps in the 2-, 3-, 5-, 10-year notes and 30-year bond during the period of 2005-2006. Our results show that jumps mostly occur during prescheduled macroeconomic announcements or events. Nevertheless, market surprise based on preannouncement surveys is an imperfect predictor of bond price jumps. We find that a macroeconomic news announcement is often preceeded by an increase in market volatility and a withdrawal of liquidity, and that liquidity shocks play an important role for price jumps in U.S. Treasury market. More importantly, we present evidence that jumps serve as a dramatic form of price discovery in the sense that they help to quickly incorporate market information into bond prices.
    Keywords: Financial markets
    JEL: G12 G14
    Date: 2008
  2. By: Mototsugu Shintani (Department of Economics, Vanderbilt University, and Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:,; Tomoyoshi Yabu (Assistant Professor, Graduate School of Systems and Information Engineering, University of Tsukuba (E-mail:; and Daisuke Nagakura (Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: This paper investigates the spurious effect in forecasting asset returns when signals from technical trading rules are used as predictors. Against economic intuition, the simulation result shows that, even if past information has non predictive power, buy or sell signals based on the difference between the short-period and long-period moving averages of past asset prices can be statistically significant when the forecast horizon is relatively long. The theory implies that both e momentumf and econtrarianf strategies can be falsely supported, while the probability of obtaining each result depends on the type of the test statistics employed. Several modifications to these test statistics are considered for the purpose of avoiding spurious regressions. They are applied to the stock market index and the foreign exchange rate in order to reconsider the predictive power of technical trading rules.
    Keywords: Efficient market hypothesis, Nonstationary time series, Random walk, Technical analysis
    JEL: C12 C22 C25 G11 G15
    Date: 2008–06

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