TY - JOUR
T1 - Real-time price discovery in global stock, bond and foreign exchange markets
AU - Andersen, Torben G.
AU - Bollerslev, Tim
AU - Diebold, Francis X.
AU - Vega, Clara
N1 - Funding Information:
This work was supported by the National Science Foundation, the Guggenheim Foundation, the BSI Gamma Foundation, and CREATES. For useful comments we thank the Editor and referees, seminar participants at the Bank for International Settlements, the BSI Gamma Foundation, the Symposium of the European Central Bank/Center for Financial Studies Research Network, the NBER International Finance and Macroeconomics program, and the American Economic Association Annual Meetings, as well as Rui Albuquerque, Annika Alexius, Boragan Aruoba, Anirvan Banerji, Ben Bernanke, Robert Connolly, Jeffrey Frankel, Lingfeng Li, Richard Lyons, Marco Pagano, Paolo Pasquariello, and Neng Wang.
PY - 2007/11
Y1 - 2007/11
N2 - Using a unique high-frequency futures dataset, we characterize the response of U.S., German and British stock, bond and foreign exchange markets to real-time U.S. macroeconomic news. We find that news produces conditional mean jumps; hence high-frequency stock, bond and exchange rate dynamics are linked to fundamentals. Equity markets, moreover, react differently to news depending on the stage of the business cycle, which explains the low correlation between stock and bond returns when averaged over the cycle. Hence our results qualify earlier work suggesting that bond markets react most strongly to macroeconomic news; in particular, when conditioning on the state of the economy, the equity and foreign exchange markets appear equally responsive. Finally, we also document important contemporaneous links across all markets and countries, even after controlling for the effects of macroeconomic news.
AB - Using a unique high-frequency futures dataset, we characterize the response of U.S., German and British stock, bond and foreign exchange markets to real-time U.S. macroeconomic news. We find that news produces conditional mean jumps; hence high-frequency stock, bond and exchange rate dynamics are linked to fundamentals. Equity markets, moreover, react differently to news depending on the stage of the business cycle, which explains the low correlation between stock and bond returns when averaged over the cycle. Hence our results qualify earlier work suggesting that bond markets react most strongly to macroeconomic news; in particular, when conditioning on the state of the economy, the equity and foreign exchange markets appear equally responsive. Finally, we also document important contemporaneous links across all markets and countries, even after controlling for the effects of macroeconomic news.
KW - Asset pricing
KW - Asset return volatility
KW - Financial market linkages
KW - Forecasting
KW - High-frequency data
KW - Macroeconomic news announcements
KW - Market microstructure
KW - Survey data
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U2 - 10.1016/j.jinteco.2007.02.004
DO - 10.1016/j.jinteco.2007.02.004
M3 - Article
AN - SCOPUS:35648955067
SN - 0022-1996
VL - 73
SP - 251
EP - 277
JO - Journal of International Economics
JF - Journal of International Economics
IS - 2
ER -