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Impact of Macroeconomic Announcements on Interest Rate Futures: High-Frequency Evidence from Australia

31 Pages Posted: 23 Dec 2011 Last revised: 10 Jun 2013

Lee A. Smales

Curtin University - School of Economics and Finance; Curtin University - Graduate School of Business

Date Written: January 6, 2012

Abstract

This paper investigates the behavior of Australian interest rate futures around the release of major scheduled macroeconomic announcements. The analysis of price volatility, returns, trading activity and bid-ask spreads finds that the adjustment to new information occurs quickly with the significant part of the reaction complete within 30-seconds. The 30-seconds immediately prior to the announcement exhibits high volatility, low levels of volume, and high bid-ask spreads. In the 30 seconds following the scheduled announcement there is strong evidence of a sharp increase in price volatility, significant positive correlation in returns, large adjusted returns and high levels of trading activity. The reaction is stronger in shorter maturity contracts. There is some evidence of price reversals occurring following this sharp adjustment. The 2007-2008 Global Financial Crisis has had a significant impact on the reaction of Australian interest rate futures to major macroeconomic announcements, with evidence of higher volatility, significantly higher returns and decreasing market activity.

Keywords: Interest Rates, Futures Markets, Australia, High-Frequency, GFC, Trading Activity

JEL Classification: E44, G10, G14, G15

Suggested Citation

Smales, Lee A., Impact of Macroeconomic Announcements on Interest Rate Futures: High-Frequency Evidence from Australia (January 6, 2012). Journal of Financial Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1975205 or http://dx.doi.org/10.2139/ssrn.1975205

Lee A. Smales (Contact Author)

Curtin University - School of Economics and Finance ( email )

GPO Box U 1987
Perth, Western Australia 6845
Australia

Curtin University - Graduate School of Business ( email )

Bentley WA 6102
Australia

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