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

CREATES Research Paper No. 2007-20

38 Pages Posted: 23 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

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)

Clara Vega

Board of Governors of the Federal Reserve System

Multiple version iconThere are 3 versions of this paper

Date Written: August 16, 2007

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 Bollerslev, Tim and Diebold, Francis X. and Vega, Clara, Real-Time Price Discovery in Global Stock, Bond and Foreign Exchange Markets (August 16, 2007). CREATES Research Paper No. 2007-20. Available at SSRN: https://ssrn.com/abstract=1150085 or http://dx.doi.org/10.2139/ssrn.1150085

Torben G. Andersen (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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Aarhus University - CREATES ( email )

School of Economics and Management
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DK-8000 Aarhus C
Denmark

Tim Bollerslev

Duke University - Finance ( email )

Durham, NC 27708-0120
United States
919-660-1846 (Phone)
919-684-8974 (Fax)

Duke University - Department of Economics

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Francis X. Diebold

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States
215-898-1507 (Phone)
215-573-4217 (Fax)

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

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Clara Vega

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

HOME PAGE: http://www.federalreserve.gov/research/staff/vegaclarax.htm

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