Is the Intrinsic Value of Macroeconomic News Announcements Related to Their Asset Price Impact?

54 Pages Posted: 8 Feb 2016

See all articles by Thomas Gilbert

Thomas Gilbert

University of Washington - Department of Finance and Business Economics

Chiara Scotti

Board of Governors of the Federal Reserve System

Georg Strasser

European Central Bank (ECB) - Directorate General Research

Clara Vega

Board of Governors of the Federal Reserve System

Multiple version iconThere are 4 versions of this paper

Date Written: February 8, 2016

Abstract

The literature documents a heterogeneous asset price response to macroeconomic news announcements: Some announcements have a strong impact on asset prices and others do not. In order to explain these differences, we estimate a novel measure of the intrinsic value of a macroeconomic announcement, which we define as the announcement's ability to nowcast GDP growth, inflation, and the Federal Funds Target Rate. Using the same nowcasting framework, we then decompose this intrinsic value into the announcement's characteristics: its relation to fundamentals, timing, and revision noise.

We find that in the 1998-2013 period, a significant fraction of the variation in the announcements' price impact on the Treasury bond futures market can be explained by differences in intrinsic value. Furthermore, our novel measure of timing explains significantly more of this variation than the announcements' relation to fundamentals, reporting lag (which previous studies have used as a measure of timing), or revision noise.

Keywords: macroeconomic announcements, price discovery, learning, macroeconomic

JEL Classification: G14, E44

Suggested Citation

Gilbert, Thomas and Scotti, Chiara and Strasser, Georg H. and Vega, Clara, Is the Intrinsic Value of Macroeconomic News Announcements Related to Their Asset Price Impact? (February 8, 2016). ECB Working Paper No. 1882, Available at SSRN: https://ssrn.com/abstract=2729210

Thomas Gilbert (Contact Author)

University of Washington - Department of Finance and Business Economics ( email )

Box 353200
Seattle, WA 98195
United States
206-616-7184 (Phone)

HOME PAGE: http://faculty.washington.edu/gilbertt/

Chiara Scotti

Board of Governors of the Federal Reserve System ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States

Georg H. Strasser

European Central Bank (ECB) - Directorate General Research ( email )

Sonnemannstra├če 20
Frankfurt am Main, 60314
Germany
+496913441416 (Phone)

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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