Macroeconomic Announcements and Volatility of Treasury Futures

UCSD Economics Discussion Paper 98-27

Posted: 17 Feb 1999

See all articles by Li Li

Li Li

University of California, San Diego (UCSD)

Robert F. Engle

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); New York University (NYU) - Volatility and Risk Institute

Date Written: November 1998

Abstract

Utilizing open-close returns, close-close returns and volume data, we examine the reaction of the Treasury futures market to the periodically scheduled announcements of prominent U.S. macroeconomic data. Heterogeneous persistence from scheduled news vs. non-scheduled news is revealed. Strong asymmetric effects of scheduled announcements are presented: positive shocks depress volatility on consecutive days, while negative shocks increase volatility. Announcement-day shocks have small persistence, but great impacts on volatility in the short run. Investigation into volume data shows that announcement-day volume has lower persistence than non-announcement-day volume. No statistically significant risk premium manifests on the release dates. Compared with the implied volatility and realized volatility data, we find our model successful in forming both in-sample and out-of-sample multi-step forecasts. Distinctions are made and tested among microstructure theories that differ in predictions of the impact of scheduled macroeconomic news on volatility and volatility persistence. Asymmetric effects between positive and negative shocks from scheduled news call for further exploration of microstructure theory.

JEL Classification: C32, G12, G13, G14

Suggested Citation

Li, Li and Engle, Robert F., Macroeconomic Announcements and Volatility of Treasury Futures (November 1998). UCSD Economics Discussion Paper 98-27, Available at SSRN: https://ssrn.com/abstract=145828

Li Li

University of California, San Diego (UCSD) ( email )

9500 Gilman Drive
Mail Code 0502
La Jolla, CA 92093-0502
United States

Robert F. Engle (Contact Author)

New York University (NYU) - Department of Finance

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

New York University (NYU) - Volatility and Risk Institute ( email )

44 West 4th Street
New York, NY 10012
United States

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