Real-Time Price Discovery in Global Stock, Bond and Foreign Exchange Markets

Posted: 3 Jun 2008

See all articles by Torben G. Andersen

Torben G. Andersen

Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER); Aarhus University - CREATES

Clara Vega

Board of Governors of the Federal Reserve System

Tim Bollerslev

Duke University - Finance; Duke University - Department of Economics; National Bureau of Economic Research (NBER)

Francis X. Diebold

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

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Abstract

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.

Keywords: Asset Pricing, Macroeconomic News Announcements, Financial Market Linkages, Market Microstructure, High-Frequency Data, Survey Data, Asset Return Volatility, Forecasting

JEL Classification: F3, F4, G1, C5

Suggested Citation

Andersen, Torben G. and Vega, Clara and Bollerslev, Tim and Diebold, Francis X., Real-Time Price Discovery in Global Stock, Bond and Foreign Exchange Markets. Journal of International Economics, Vol. 73, No. 2, 2007; FRB International Finance Discussion Paper No. 871. Available at SSRN: https://ssrn.com/abstract=1139919

Torben G. Andersen (Contact Author)

Northwestern University - Kellogg School of Management ( email )

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Clara Vega

Board of Governors of the Federal Reserve System ( email )

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Tim Bollerslev

Duke University - Finance ( email )

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Francis X. Diebold

University of Pennsylvania - Department of Economics ( email )

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HOME PAGE: http://www.ssc.upenn.edu/~fdiebold/

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