banking panics information and rational expectations equilibrium this paper shows that bank runs can be modeled as an equilibrium phenomenon we demonstrate that some aspects of the intuitive story that bank runs start with fears of insolvency of banks can be rigorously modeled if individuals observe long lines at the bank they correctly infer that there is a possibility that the bank is about to fail and precipitate a bank run however bank runs occur even when no one has any adverse information extra market constraints such as suspension of convertibility can prevent bank runs and result in superior allocations banking panics were a recurrent phenomenon in the united states until the 1930s they have re emerged as a source of public concern and much theoretical research recently in this paper we provide an information theoretic rationale for bank runs the traditional story is that contagion is an important aspect of bank runs the idea seems to be that when the general public observes large withdrawals from the banking system fears of insolvency grow resulting in even larger withdrawals of deposits in our model some individuals withdraw because they get information that future returns are likely to be low uninformed individuals observing this also have an incentive to liquidate their investments in addition some individuals need to withdraw deposits for other than informationally based reasons thus if the random realization of such a group of individuals is unusually large then the uninformed individuals will be misled and will precipitate a run on the bank the technology is such that a large volume of withdrawals involves liquidation costs consequently runs on the bank do impose social costs a mechanism that may reduce these costs in our model is to suspend convertibility if withdrawals are high however those individuals who need to withdraw their assets for liquidity reasons are worse off ex post our model provides a rationalization for restrictions in demand deposits that were widespread prior to 1929 friedman and schwartz 7 suggest that restrictions of payments ensured

heterogeneous information arrivals and return volatility dynamics uncovering the long run in high frequency returns recent empirical evidence suggests that the interdaily volatility clustering for most speculative returns are best characterized by a slowly mean reverting fractionally integrated process meanwhile much shorter lived volatility dynamics are typically observed with high frequency intradaily returns the present article demonstrates that by interpreting the volatility as a mixture of numerous heterogeneous short run information arrivals the observed volatility process may exhibit long run dependence as such the long memory characteristics constitute an intrinsic feature of the return generating process rather than the manifestation of occasional structural shifts these ideas are confirmed by our analysis of a one year time series of fiveminute deutschemark u s dollar exchange rates among the most puzzling issues is the behavior of volatility while the general properties of volatility remain elusive perhaps the most intriguing feature revealed by empirical work on volatility is its long persistence such behavior has sparked a search almost akin to that for the holy grail for the perfect garch model but the underlying question of why such volatility persistence endures remains unanswered we conjecture that the ability to analyze higher frequency data may be particularly useful in pursuing this issue goodhart and o hara 1997 the pronounced volatility clustering is arguably one of the most striking features of financial price series recorded at daily or weekly intervals and a large body of literature seeking to characterize this aspect of speculative returns has emerged over the past decade 1 at the same time convincing theoretical explanations for the underlying sources of long run persistence in volatility remain elusive the recent advent of comprehensive high frequency andersen is from the j l kellogg graduate school of management of northwestern university bollerslev is from the university of virginia and is a research associate at the national bureau of economic research we gratefully acknowledge the financial support provided by a research grant from the institute for quantitative research in finance the q group special thanks are due to olsen and associates for making the intradaily exchange rate quotes and reuter s news tape available we have received valuable comments from wake epps clive w j granger stephen f gray j huston mcculloch as well as seminar participants at the december 1996 triangle econometrics workshop the 1997 afa meetings in new orleans academia sinica the wharton school usc and georgetown and york universities we remain fully responsible for the content 1 see bollerslev chou and kroner 1992 for a survey of this literature using arch type

market specific news and its impact on forward premia on electricity markets abstract this paper studies the impact of market specific news on the short term forward premia on the nordic electricity market i show that the short term premia between the day ahead and intra day electricity prices on the nordic market can be partly explained by the arrival of news specific to the power market by exploring the types of news i show that production failures are most important in shaping premia production disruptions in coal powered units are most frequent and have the greatest effect on the differences between the day ahead and intra day prices

private information deposit interest rates and the stability of the banking system abstract the regulation of deposit interest rates has received little support from economists the same is true for the original rationale for such regulation that bank competition for deposits generates inherent instability in the banking system this paper develops an adverse selection model of banking in which this rationale is correct moreover in this model instability in the banking system can arise despite the presence of a lender of last resort and despite the absence of any need for deposit insurance however in the world described the regulation of deposit interest rates is shown to be an appropriate response to instability in the banking system finally it is argued that adverse selection models of deposit interest rate determination can confront a number of observed phenomena that are not readily explained in other contexts

jumps cojumps and macro announcements we use recently proposed tests to extract jumps and cojumps from three types of assets stock index futures bond futures and exchange rates we then characterize the dynamics of these discontinuities and informally relate them to us macroeconomic releases before using limited dependent variable models to formally model how news surprises explain co jumps nonfarm payroll and federal funds target announcements are the most important news across asset classes trade balance shocks are important for foreign exchange jumps we relate the size frequency and timing of jumps across asset classes to the likely sources of shocks and the relation of asset prices to fundamentals in the respective classes

beauty and the labor market the authors examine the impact of looks on earnings using interviewers ratings of respondents physical appearance plain people earn less than average looking people who earn less than the good looking the plainness penalty is 5 to 10 percent slightly larger than the beauty premium effects for men are at least as great as for women unattractive women have lower labor force participation rates and marry men with less human capital better looking people sort into occupations where beauty may be more productive but the impact of individuals looks is mostly independent of occupation suggesting the existence of pure employer discrimination copyright 1994 by american economic association

information technology and time based competition in financial markets this paper studies time based competition in imperfect securities markets linking it investment decisions information processing delays and trading strategies at the it investment stage traders trade off the cost of it against their anticipated trading profits at the trading stage each trader devises a trading strategy based on his new information while taking into account the impact of both his own trades and those of other traders in the market our results illustrate how traders react to market imperfections due to trading costs and information processing delays and how superior traders convert a timeliness advantage into higher trading profits they also shed light on the relationship between the price adjustment process and traders information processing delays timeliness imposes an interesting structure on trader competition traders with longer information processing delays trade less frequently submit smaller orders and enjoy lower profits per trade our analysis of traders it investment decisions demonstrates how factors such as it costs number of traders and the frequency and nature of new information affect the level of it investments we further illustrate how improved it infrastructure translates into competitive advantage

informativeness of trade size in foreign exchange markets this article investigates a trading strategy that relies on private information in an electronic spot foreign exchange market in a structural microstructure model extended for high frequency data our analysis links the informational content of trading activity to order size we find that large currency orders are likely to be placed by informed traders during increased price volatility episodes in addition the data suggest that excess kurtosis in exchange rate returns corresponding to large price contingent trades is significantly lower than that in small trades

discount rate changes stock market returns volatility and trading volume evidence from intraday data and implications for market efficiency we examine the eaect of discount rate changes on stock market returns volatility and trading volume using intraday data equity returns generally respond negatively and significantly to the unexpected announcements however the eaect of expected changes on equity returns is insignificant furthermore our results indicate that equity prices respond to announcements within the trading period hour after the information release an indication of a return reversal is too small to cover the full transaction costs unexpected discount rate changes also contribute to higher market volatility although the volatility is short lived similarly unexpected changes in discount rates induce larger trading volume while expected changes do not abnormal trading volume occurs only in period t our results also support the notion that unexpected changes in the discount rates impact market returns irrespective of the federal reserve operating procedures 1999 elsevier science b v all rights reserved

the impact of the u s employment report on exchange rates abstract the impact of the u s employment report and analyst forecasts of that report s major statistics on pound dollar yen dollar and euro dollar exchange rates are explored while the nonfarm payroll employment figure has the greatest impact we find that the exchange rates also react to the announced revision to last month s payroll figure and to the unemployment rate in all three markets the exchange rate response to the payroll employment figure is strongly conditioned on pre release analyst uncertainty the median analyst forecast from bloomberg anticipates over 80 of the monthly variation in the payroll figure and is basically unbiased the markets appear to respond to these analyst forecasts prior to the government release analyst forecast dispersion tends to increase following large forecast errors indicating that when the announced figure is far from what analysts expected they tend to disagree on the implications for future payroll levels

price formation and liquidity in the u s treasury market the response to public information the arrival of public information in the u s treasury market sets off a two stage adjustment process for prices trading volume and bid ask spreads in a brief first stage the release of a major macroeconomic announcement induces a sharp and nearly instantaneous price change with a reduction in trading volume demonstrating that price reactions to public information do not require trading the spread widens dramatically at announcement evidently driven by inventory control concerns in a prolonged second stage trading volume surges price volatility persists and spreads remain moderately wide as investors trade to reconcile residual differences in their private views how do financial markets form prices and provide liquidity when information arrives efforts to address this issue have led to an extensive microstructure literature on equity markets and to a lesser extent on the foreign exchange fx market relatively little work has focused on the u s treasury market however in spite of its importance in its own right and the advantages it offers as an alternative testing ground for microstructure hypotheses

macroannouncements bond auctions and rating actions in the european government bond spreads this paper investigates the impact of macroannouncements government bond auctions and rating actions on the 10 year government bond spreads for belgium france italy the netherlands spain with respect to germany using a unique tick by tick dataset over 1 02 2009 05 31 2012 we identify the impact of the three drivers via jump and cojump detection procedures disentangling the pre from the post announcement effects real economy and forward looking news releases from us and euro area country specific spanish and german macroannouncements and auctions hold in distressed countries such italy and spain have a statistically and economically significant effect no role is played by rating actions

the microstructure of the euro money market abstract this paper provides an empirical examination of the microstructure of the euro money market especially the overnight market the interbank market for short term funds in the transnational currency created in january 1999 the institutional framework shaping the microstructure of the money market can be delimited as the union of 1 central banks interest setting bodies and their long term policy strategy 2 instruments for monetary policy operations and liquidity management 3 the private market financial instruments and trading mechanisms for funds and 4 the payment and settlement infrastructure for the transfer of those funds all four elements can significantly influence the intraday behaviour of money market rates to study their effects on the euro money market 5 months of intraday data for overnight deposits have been recorded from brokers in four euro area countries and the uk posting their quotes on reuters and from the italian electronic market mid the results show two hump shaped or u shaped intraday patterns of quoting frequency and volatility but flatter intraday patterns sometimes weakly single hump shaped for bid ask spreads even intraday overnight rate levels hardly differ across brokers located in different euro area countries reflecting the high integration of this market already shortly after the introduction of the euro despite some remaining heterogeneities in market structures and trading channels quoting activity rate volatility and spreads increase on ecb governing council days particularly after the 1 45 pm release time of interest rate decisions however since the amplitude of this volatility is economically small and since turnovers are not indicative of adverse selection the average degree of policy uncertainty seems to have been rather limited during our sample period ecb announcements of new m3 data related to the first pillar of its monetary policy strategy around 10am seem to be associated with very moderate increases in short term volatility tuesdays eurosystem main refinancing auctions with the open market exhibit active pre and post auction liquidity re allocation but only a very short and moderate increase in volatility after the announcement of the allotments and no signs of market power or adverse selection open market operation settlement days exhibit the highest turnovers during the business week at least for the mid without however being affected by any special risks finally it is shown that spreads and volatility tend to be very high at the end of the minimum reserve maintenance period and that the same happened during the year 2000 changeover days reflecting the high risks involved in both

the impact of obesity on wages abstract previous studies of the relationship between body weight and wages have found mixed results this paper uses a larger data set and several regres sion strategies in an attempt to generate more consistent estimates of the effect of weight on wages differences across gender race and ethnicity are explored this paperjnds that weight lowers wages for white females ols esti mates indicate that a difference in weight of two standard deviations roughly 65 pounds is associated with a difference in wages of 9 percent in absolute value this is equivalent to the wage effect of roughly one and a half years of education or three years of work experience negative cor relations between weight and wages observed for other gender ethnic groups appear to be due to unobserved heterogeneity i introduction several previous studies have found among females a negative cor relation between body weight and wages there exist three broad categories of ex planations for this finding the first explanation is that obesity lowers wages for example by lowering productivity or because of workplace discrimination the sec ond is that low wages cause obesity this would be true if poorer people consume

the effect of unanticipated money on the money and foreign exchange markets abstract a number of studies have attempted to determine why unanticipated increases in the money supply are positively correlated with money market interest rates by examining the response of the foreign exchange market to unanticipated changes in the money stock they have found a significant positive relationship between unanticipated increases in the money supply and the foreign exchange value of the dollar and have interpreted this as evidence for the anticipated liquidity effect hypothesis however these results support this hypothesis only if both markets respond simultaneously to unanticipated changes in money this paper examines the cross market consistency of the response using six bilateral exchange rates and the treasury bill rate all measured over a narrow time interval the results show that in general these markets do not respond simultaneously to money announcements

ecb monetary policy surprises identification through cojumps in interest rates this paper proposes a new econometric approach to disentangle two distinct response patterns of the yield curve to monetary policy announcements based on cojumps in intraday tick data of a short and long term interest rate we develop a day wise test that detects the occurrence of a significant policy surprise and identifies the market perceived source of the surprise the new test is applied to 133 policy announcements of the european central bank ecb in the period from 2001 2012 our main findings indicate a good predictability of ecb policy decisions and remarkably stable perceptions about the ecb s policy preferences

the effects of macroeconomic news on high frequency exchange rate behavior this paper studies the high frequency reaction of the dem usd exchange rate to publicly announced macroeconomic information emanating from germany and the u s by us ing data sampled at a five minute frequency we are able to identify significant impacts of most announcements on the exchange rate change in the 15 minutes post announcement although the significance of these effects decreases rapidly as the interval over which the post announcement change in exchange rates is increased the direction of the exchange rate response conforms in general with a reaction function interpretation whereby reac tions to macroeconomic news are driven by the likely operations of monetary authorities in domestic money markets further we detect influences of german monetary policy deci sions on the reaction of the exchange rate and also differences between u s and german announcements in the exchange rate reaction time pattern i introduction this paper studies the high frequency reaction of the dem usd exchange rate to macroeconomic information emanating from germany and the u s specif ically we utilize exchange rate data covering the period 1 1 92 to 31 12 94 sam pled at a five minute frequency to investigate how the major monthly macroe conomic releases from these two countries impact the dem usd the infor mation contained in announcements over this three year period is extracted via a set of market expectation series supplied by money market services interna tional mms 1 our analysis improves on previous work in this area in two main respects first our study is conducted using very high frequency data whereas most earlier work has used exchange rate data sampled at a frequency of a number of hours or more this allows us to construct a very precise characterization of

round the clock market efficiency and home bias evidence from the international japanese government bonds futures markets abstract this paper examines how information is processed between almost identical international futures markets london liffe and tokyo tse jgb futures in these markets variations in open to open changes are virtually the same as those of close to close changes suggesting that information is transmitted efficiently across markets with small opening pricing errors the overall results confirm market efficiency around the clock yet the intraday u shaped patterns in volume volatility of the london jgb futures suggest home bias in international investments indicating a less global view of trading than expected specifically at the liffe open london investors rush to rebalance portfolios instead of doing so at the tse close which is only one hour before the liffe opens

interaction between stock markets an analysis of the common trading hours at the london and new york stock exchange abstract this paper examines the spill overs in both returns and volatility between the london and new york stock markets during overlapping trading hours using high frequency data for the ftse and s p stock index futures we estimate the seasonal patterns in volatility using a flexible fourier form specification the estimated seasonals are used to adjust the returns before conducting the lead lag analysis the results indicate that both markets influence each other although the impact of the usa on the uk is clearly stronger

volatility in wheat spot and futures markets 1950 1993 government farm programs seasonality and causality we explore how wheat spot and futures market volatility has been impacted by government farm programs during the 1950 1993 period we find that changing volatility in both markets is highly associated with changing farm programs the mandatory allotment programs of the 1950s and early 1960s 1 3 50 4 10 64 were associated with low volatility while the voluntary programs initiated in the mid 1960s seem to have induced high volatility 4 11 64 12 22 85 both market driven loan rates and conservation reserve programs appear to have helped volatility revert to lower levels since the mid 1980s 12 23 85 12 30 93 we also examine seasonality and causality in conjunction with the farm programs we explore how wheat spot and futures price volatility has been impacted by government farm programs many studies have examined the effects of various farm policies mckinnon 1967 blakeslee 1980 miranda and helmberger

intraday price reversals for index futures in the us and hong kong abstract we observe intraday price reversals following large price changes at the opening of the s p 500 futures market and the hsi futures market we note that the magnitude of subsequent price reversals is positively related to the initial price changes and that the price reversals are not caused by a bid ask spread or by panic among investors we also note that such price reversals can be exploited to give rise to profitable opportunities after transaction costs even though these may not be very significant this study shows that investor overreaction may be a universal phenomenon and irrational investor behavior like overreaction may also exist among groups of sophisticated investors

the impact of macroeconomic news on quote adjustments noise and informational volatility we study the impact of the arrival of macroeconomic news on the informational and noise driven components in high frequency quote processes and their conditional variances bid and ask returns are decomposed into a common efficient return factor and two market side specific components capturing market microstructure effects the corresponding variance components reflect information driven and noise induced volatilities we find that all volatility components reveal distinct dynamics and are positively influenced by news the proportion of noise induced variances is highest before announcements and significantly declines thereafter moreover news affected responses in all volatility components are influenced by order flow imbalances

uncertain liquidity and interbank contracting we study a version of the diamond and dybvig journal of political economy 1983 91 401 419 model where banks would like to obtain insurance against shocks on returns on liquid assets through an interbank borrowing and lending program we show that if investments in liquid assets and their realized returns are private information to individual banks the first best allocation is not incentive compatible we then characterize the second best interbank contract

distinguishing panics and information based bank runs welfare and policy implications in this paper we contrast panics and information based bank runs in an effort to provide a robust and empirically plausible model of how bank runs are triggered the model of information based runs is characterized by two sided asymmetric information the bank cannot observe the true liquidity needs of the depositors while depositors are asymmetrically informed about bank asset quality we also examine the relative degrees of risk sharing provided by bank deposit contracts and traded equity contracts we show that the choice of deposit or equity depends on the attributes of and information about the underlying investment returns

the short run dynamics of the price adjustment to new information we examine how prices in interest rate and foreign exchange futures markets adjust to the new information contained in scheduled macroeconomic news releases in the very short run using 10 second returns and tick by tick data we find that prices adjust in a series of numerous small but rapid price changes that begin within 10 seconds of the news release and are basically completed within 40 seconds of the release there is some evidence that prices overreact in the first 40 seconds but that this is corrected in the second or third minute after the release while volatility tends to be higher than normal just before the news release there is no evidence of information leakage in our analysis we correct for the biases created by bid ask spreads and tick by tick data

deutsche mark dollar volatility intraday activity patterns macroeconomic announcements and longer run dependencies this paper provides a detailed characterization of the volatility in the deutsche mark dollar foreign exchange market using an annual sample of five minute returns the approach captures the intraday activity patterns the macroeconomic announcements and the volatility persistence arch known from daily returns the different features are separately quantified and shown to account for a substantial fraction of return variability both at the intraday and daily level the implications of the results for the interpretation of the fundamental driving forces behind the volatility process is also discussed the efficient market hypothesis contends that financial asset prices provide rational assessments of fundamental values and future payoffs by implication price changes should reflect the arrival and processing of all relevant new information however the proportion of return variability that can be ascribed to public news announcements is low for example cutler poterba and summers 1989 find that even the largest daily price changes in the stock market generally cannot be associated with any significant economic news 1 moreover proxies for the flow of public information e g the number of news items released by reuter s news service berry and hiowe 1994 or dow jones company mitchell and mulherin 1994 explain little of the overall variation thus if private information is ruled out proponents of rational price formation have to assert the existence of important news items

modelling s p 100 volatility the information content of stock returns abstract theoretical models that relate volatility to the quantity of information are extended to a multi asset setting and it is deduced that stock returns may or may not have incremental information when modelling index volatility depending on the sources of information that move stock prices the first empirical study that can help resolve this theoretical uncertainty is presented a detailed analysis of the daily volatility of the s p 100 index from 1984 to 1998 shows there is some incremental volatility information in the returns from the 100 shares that define the index this evidence is obtained from arch models that incorporate leverage effects dummy variables for the 1987 crash and aggregate measures of stock return volatility significant differences between estimated volatilities are found for various stock measures and sub periods

segmentation and time of day patterns in foreign exchange markets abstract this paper sheds light on a puzzling pattern in spot foreign exchange markets domestic currencies appreciate depreciate systematically during foreign domestic working hours this phenomenon spans many years and several exchange rates and overrides calendar effects we argue that it is mainly due to liquidity and inventory patterns that emerge from the combination of two factors domestic agents tend to be net buyers of foreign currency and to trade mostly in their country s working hours the prevalence of domestic foreign traders demanding the counterpart currency during domestic foreign working hours implies sell price buy price pressure on the domestic currency during domestic foreign working hours

exchange rates and fundamentals new evidence from real time data abstract this paper analyses the link between economic fundamentals and exchange rates by investigating the importance of real time data we find that economic news in the united states germany and the euro area have been a driving force behind daily us dollar euro dem exchange rate developments in the period 1993 2003 the larger importance of us macroeconomic news is at least partly explained by their earlier release time compared to corresponding german and euro area news the exchange rate is also shown to respond more strongly to news in periods of large market uncertainty and when negative or large shocks occur overall the model based on real time data explains about 75 of the monthly directional changes of the us dollar euro exchange rate although it does not explain well the magnitude of the exchange rate changes

health human capital height and wages in china abstract we estimate the returns to height using data from 12 chinese cities we present both ordinary least squares ols and two stage least squares tsls estimates in the latter height is instrumented using proxies for health human capital accumulated in childhood and adolescence which influence adult height the tsls estimates are much higher reflecting the fact that the ols estimates are determined by the random genetic factors influencing height while the tsls estimates also take into account returns from investment in health human capital during childhood and adolescence these results imply considerable returns to investment in health human capital

intraday market effects in electronic soybean futures market during non trading and trading hour announcements abstractthis article investigates market reactions to major united states department of agriculture announcements during non trading and trading hours in the soybean futures market using microstruc

the price of liquidity the effects of market conditions and bank characteristics we study the prices that individual banks pay for liquidity captured by borrowing rates in repos with the central bank and benchmarked by the overnight index swap as a function of market conditions and bank characteristics these prices depend in particular on the distribution of liquidity across banks which is calculated over time using individual bank level data on reserve requirements and actual holdings banks pay more for liquidity when positions are more imbalanced across banks consistent with the existence of short squeezing we also show that small banks pay more for liquidity and are more vulnerable to squeezes healthier banks pay less but contrary to what one might expect banks in formal liquidity networks do not state guarantees reduce the price of liquidity but do not protect against squeezes

how markets process information news releases and volatility we examine the impact of scheduled macroeconomic news announcements on interest rate and foreign exchange futures markets we find these announcements are responsible for most of the observed time of day and day of the week volatility patterns in these markets while the bulk of the price adjustment to a major announcement occurs within the first minute volatility remains substantially higher than normal for roughly fifteen minutes and slightly elevated for several hours nonetheless these subsequent price adjustments are basically independent of the first minute s return we identify those announcements with the greatest impact on these markets we examine the impact on interest rate and foreign exchange markets of scheduled macroeconomic news releases such as the employment report the consumer price index cpi and the producer price index ppi many market participants believe that such announcements have a major impact on financial markets indeed a small industry devoted to predicting the figures to be released in upcoming releases has evolved in recent years with the exception of the weekly money supply figures however the impact of such announcements on financial markets has received scant attention 1 this is doubly surprising given the considerable research interest in market volatility since these news releases are a potential source of much of this volatility consider for instance figure 1 as shown there prices in interest rate and foreign exchange futures markets are much more volatile between 8 30 and 8 35 a m eastern time et than during any other five minute trading period including

the federal funds market excess reserves and unconventional monetary policy abstract following the bankruptcy of lehman brothers interbank borrowing and lending dropped whereas reserve holdings of depository institutions skyrocketed as the fed injected liquidity into the u s banking sector this paper introduces bank liquidity risk and limited market participation into a real business cycle model with ex ante identical financial intermediaries and shows in an analytically tractable way how interbank trade and excess reserves emerge in general equilibrium investigating the role of the federal funds market and unconventional monetary policy for the propagation of aggregate real and financial shocks i find that federal funds market participation is irrelevant in response to standard supply and demand shocks whereas it matters for uncertainty shocks i e mean preserving spreads in the cross section of liquidity risk liquidity injections by the central bank can absorb the effects of financial shocks on the real economy although excess reserves might increase and federal funds might be crowded out as a side effect

bank suspension of convertibility abstract a banking panic occurs when depositors at all banks seek a large reduction in their deposit holdings suspension of convertibility of demand deposits into currency was the banking system s response to a banking panic when depositors are incompletely informed about the state of bank investments a panic can occur when depositors expect capital losses conditional on having observed noisy indicators of the state of bank investments banks with superior information about the investments can signal to depositors by suspending convertibility that continuation of the long term investments is mutually beneficial

the effect of changes in the federal funds rate target on market interest rates in the 1970s abstract this paper examines the influence of monetary policy on interest rates by estimating the effect of changes in the federal funds rate target the federal reserve s policy instrument on market interest rates in the 1970s we find that changes in the target caused large movements in short term rates and smaller but significant movements in intermediate and long term rates we hypothesize that the similarity of the reactions of three six and twelve month rates to changes in the target offers a possible explanation for the lack of support for the expectations theory from studies that have tested the theory using these rates

us presidential elections and implied volatility the role of political uncertainty abstract this paper focuses on the effects of political uncertainty and the political process on implied stock market volatility during us presidential election cycles using monthly iowa electronic markets data over five elections we document that stock market uncertainty as measured by the vix volatility index increases along with positive changes in the probability of success of the eventual winner the association between implied volatility and the election probability of the eventual winner is positive even after controlling for changes in overall election uncertainty these findings indicate that the presidential election process engenders market anxiety as investors form and revise their expectations regarding future macroeconomic policy

how the equity market responds to unanticipated events we examine the market reaction of prices volume spreads and trading location when firms experience events that are totally unanticipated by the equity market in terms of both timing and content we find that the response time is longer than previous studies have reported selling pressure wider spreads and higher volume remain significant for over an hour we also find an immediate price reaction for overnight events however the market takes longer to react to events that occur when it is open these findings may shed light on the efficacy of trading halts

a note on the height wage differential in the uk cross sectional evidence from the bhps abstract using bhps data for the first time evidence for the height earnings relationship is updated for the uk in contrast to prior findings baseline height differentials mainly vanish once individuals occupation and non linear height gradients are accounted for

the high frequency response of energy prices to u s monetary policy understanding the empirical evidence abstract this paper examines the impact of conventional and unconventional monetary policy on energy prices using an event study with intraday data three measures for monetary policy surprises are used 1 the surprise change to the current federal funds target rate 2 the surprise component to the future path of policy and 3 the unanticipated announcement of future large scale asset purchases lsap estimation results show that monetary policy surprises have economically important and highly significant effects on the level and volatility of energy futures prices and their trading volumes i find that on average a hypothetical unanticipated 100 basis point hike in the federal funds target rate is associated with roughly a 3 decrease in west texas intermediate crude oil prices i also document that in a narrow window around the fomc meeting the federal reserve s lsap1 and lsap2 programs have a cumulative financial market impact on crude oil equivalent to an unanticipated cut in the federal funds target rate of 156 basis points

an investigation of transactions data for nyse stocks using transactions data the behavior of returns and characteristics of trades at the micro level is examined a minute by minute market return series is formed and tested for normality and autocorrelation evidence of differences in return distributions is found among overnight trades trades during the first 30 minutes following the market opening trades at the close and trades during the remainder of the day the latter distribution is found to be normal unusually high returns and standard deviations of returns are found at the beginning and the end of the trading day when the beginningand end of the day effects are omitted autocorrelation in the market return series is reduced substantially a number of patterns in trading are reported this paper empirically investigates the nature of the return generating process and the characteristics of trade size price changes trading frequency and trading interval at the level of individual trades for a large sample of nyse stocks previous studies of market indices have used daily weekly or monthly

do markets care who chairs the central bank this paper assesses the effects of central bank governor appointments on financial market expectations of monetary policy to measure these effects we assemble a new dataset of appointment announcements from 15 countries and conduct an event study analysis on exchange rates bond yields and stock prices our main findings are threefold first exchange rates and bond yields display a statistically significant response to the announcement of a new governor especially when the appointee s identity was not anticipated in advance second the reactions are especially pronounced for central banks lacking either independence or a clear nominal anchor third new governors are not generally perceived to lack credibility there is no tendency for announcements to be associated with jumps in inflation expectations

expectations and risk premia at 8 30 a m deciphering the responses of bond yields to macroeconomic announcements what explains the sharp movements of the yield curve upon the release of major u s macroeconomic announcements to answer this question we estimate an arbitrage free dynamic term structure model

making sense of the labor market height premium evidence from the british household panel survey we use data from the british household panel survey to examine the labor market premium in height most of the premium is explained by higher average educational attainment and sorting into higher status occupations and industries by those who are taller

high frequency identification of monetary non neutrality the information effect we present estimates of monetary non neutrality based on evidence from high frequency responses of real interest rates expected inflation and expected output growth our identifying assumption is that unexpected changes in interest rates in a 30 minute window surrounding scheduled federal reserve announcements arise from news about monetary policy in response to an interest rate hike nominal and real interest rates increase roughly one for one several years out into the term structure while the response of expected inflation is small at the same time forecasts about output growth also increase the opposite of what standard models imply about a monetary tightening to explain these facts we build a model in which fed announcements affect beliefs not only about monetary policy but also about other economic fundamentals our model implies that these information effects play an important role in the overall causal effect of monetary policy shocks on output

what broad banks do and markets don t cross subsidization abstract we show that interbank markets are a poor substitute for broad banks that operate across regions or sectors in the presence of regional or sectoral asset and liquidity shocks interbank markets can distribute liquidity efficiently but fail to respond efficiently to asset shocks broad banks can condition on the joint distribution of both shocks and hence achieve an efficient internal allocation of capital this allocation involves the cross subsidization of loans across regions or sectors compared to regional banks that are linked through well functioning interbank markets broad banks lead to higher levels of aggregate investment higher output and less fluctuations within regions however broad banks generate endogenously aggregate uncertainty

capital markets financial intermediaries and liquidity supply abstract we study a dynamic economy endowed with a sequence of overlapping generations of consumers and production processes and where productive assets are illiquid and consumption preferences are subject to uninsurable demand for liquidity we characterize the steady states that can be achieved with alternative financial systems we show that infinitely lived financial intermediaries offering a liability with age dependent restrictions may implement a social optimum with full insurance if instead they offer anonymous unrestricted contracts then only second best consumption allocations with partial insurance obtain we also examine the consumption allocations available when agents can trade shares in competitive stock markets while allowing for trade across generations may or may not improve upon generational autarky we show that this competitive equilibrium is not a social optimum and is dominated by a system of infinitely lived unrestricted intermediaries

is information assimilated at announcements in the european carbon market abstract we examine the high frequency new information impact on prices volatility trading volume and illiquidity at scheduled macroeconomic and verified emissions announcements for the european carbon futures market verified emissions united states non farm payroll and german new factory order macroeconomic announcements impact carbon prices swiftly within 5 min we show that a one standard deviation surprise increase in verified emission announcements is associated with an approximate ten percentage point 9 96 increase in carbon futures returns a wait and see stylized trading behavior is evident at announcements in volatility and trading volumes market illiquidity increases at announcements in relation to united states non farm payroll albeit there is no evidence of an increase in illiquidity prior to announcements the development of new information impact over time occurs mainly in the at announcement 5 minute time interval

macroeconomic news order flows and exchange rates under rational expectations and efficient markets the news contained in public information announcements is directly impounded into prices with there being no role for trades in this process of information assimilation this paper directly tests this assertion using transaction level exchange rate data and a sample of scheduled macroeconomic announcements the main result of the paper is that even information that is publicly and simultaneously released to all market participants is largely impounded into prices via the key micro level price determinant order flow we quantify the role that order flow plays and find that between a half and two thirds of price relevant information is incorporated into prices via the trading process

volatility in an era of reduced uncertainty lessons from pax britannica abstract although it has been well established that financial volatility is related to news and macroeconomic shocks less emphasis has been placed on the importance of underlying economic and political stability in this paper we study the behavior of consol returns since 1729 and identify a greater than 50 decline in volatility from the end of the napoleonic wars in 1815 until the first world war news events and macroeconomic variables cannot account for this extended period of reduced volatility underlying political stability under pax britannica seems to be a more likely explanation

macroeconomic announcements and asymmetric volatility in bond returns this study analyses the impact of macroeconomic news announcements on the conditional volatility of bond returns using daily returns on the 1 3 5 and 10 year us treasury bonds we find that announcement shocks have a strong impact on the dynamics of bond market volatility our results provide empirical evidence that the bond market incorporates the implications of macroeconomic announcement news faster than other information moreover after distinguishing between types of macroeconomic announcements releases of the employment situation and producer price index are especially influential at the intermediate and long end of the yield curve while monetary policy seem to affect short term bond volatility

the effect of macroeconomic news on beliefs and preferences evidence from the options market we examine the effect of regularly scheduled macroeconomic announcements on the beliefs and preferences of participants in the u s treasury market by comparing the option implied state price densities spds of bond prices shortly before and after the announcements we find that the announcements reduce the uncertainty implicit in the second moment of the spd regardless of the content of the news the changes in the higher order moments in contrast depend on whether the news is good or bad for economic prospects we explore three alternative explanations for our empirical findings relative mispricing changes in beliefs and changes in preferences we find that our results are consistent with time varying risk aversion

monetary policy surprises and interest rates evidence from the fed funds futures market abstract this paper estimates the impact of monetary policy actions on bill note and bond yields using data from the futures market for federal funds to separate changes in the target funds rate into anticipated and unanticipated components interest rates response to anticipated target rate changes is small while their response to unanticipated changes is large and highly significant these responses are generally consistent with the expectations hypothesis of the term structure surprise target rate changes have little effect on expectations of future actions however which helps to explain the lack of empirical support for the expectations hypothesis at the short end of the yield curve

market perceptions of federal reserve policy and the weekly monetary announcements abstract in october 1979 the federal reserve altered its operating procedures emphasizing control of the growth rate of the money stock was the fed able to gain credibility in the market the paper investigates this question by examining the reactions of spot and expected future exchange rates foreign interest rates and long run domestic forward interest rates to the weekly federal reserve announcements of m l both before and after october 1979 the empirical evidence points out that the fed did gain credibility but was unable to establish full credibility the market reactions are consistent with the hypothesis that market participants attached a positive probability to the event that the fed may at some point in the future abandon its money stock targets

economic news and equity market linkages between the u s and u k abstract the source of equity market linkages between the u s and u k is investigated by focusing on intraday price movements of stock index futures contracts we document heightened u k return volatility at 11 30 a m and 1 30 p m gmt which corresponds to regular macroeconomic releases in the u k and u s respectively the response of u k equities in the half hour surrounding the u s announcements is significant and similar to price movements for u s equities to the same announcements these results support the hypothesis that the documented international equity market linkages are attributable to reactions of foreign traders to public information originating from the u s

financial integration specialization and systemic risk this paper studies the implications of cross border financial integration for financial stability when banks loan portfolios adjust endogenously banks can be subject to sectoral and aggregate domestic shocks after integration they can share these risks in a complete interbank market when banks have a comparative advantage in providing credit to certain industries financial integration may induce banks to specialize in lending an enhanced concentration in lending does not necessarily increase risk because a well functioning interbank market allows to achieve the necessary diversification this greater need for risk sharing though increases the risk of cross border contagion and the likelihood of widespread banking crises however even though integration increases the risk of contagion it improves welfare if it permits banks to realize specialization benefits

estimating the structure of market reaction to news information events and lumber futures prices we develop a new event study technique the distributional event response model derm appropriate to relatively slowly evolving information events we apply the model to twelve years of daily lumber futures prices and analyze the effects of three different types of information releases a monthly housing starts estimates b aperiodic administrative and judicial announcements about u s canada trade disputes and c novel and unprecedented court decisions related to the endangered species act esa the information releases are different in ways that predict their relative speeds of impoundment in prices we find that housing start events are absorbed more quickly than trade events which are absorbed more quickly than esa events

learning and shifts in long run productivity growth abstract an extensive literature has analyzed the macroeconomic effects of shocks to the level of aggregate productivity however there has been little corresponding research on sustained shifts in the growth rate of productivity in this paper we examine the effects of shocks to productivity growth in a dynamic general equilibrium model where agents do not directly observe whether shocks are transitory or persistent we show that an estimated kalman filter model using real time data describes economists long run productivity growth forecasts in the united states extremely well and that filtering has profound implications for the macroeconomic effects of shifts in productivity growth

bank liquidity interbank markets and monetary policy a major lesson of the recent financial crisis is that the interbank lending market is crucial for banks facing large uncertainty regarding their liquidity needs this paper studies the efficiency of the interbank lending market in allocating funds we consider two different types of liquidity shocks leading to di erent implications for optimal policy by the central bank we show that when confronted with a distribu tional liquidity shock crisis that causes a large disparity in the liquidity held among banks the central bank should lower the interbank rate this view implies that the traditional tenet prescribing the separation between prudential regulation and mon etary policy should be abandoned in addition we show that during an aggregate liquidity crisis central banks should manage the aggregate volume of liquidity two di erent instruments interest rates and liquidity injection are therefore required to cope with the two di erent types of liquidity shocks finally we show that failure to cut interest rates during a crisis erodes financial stability by increasing the risk of bank runs

the effect of adolescent experience on labor market outcomes the case of height taller workers receive a wage premium net of differences in family background the disparity is similar in magnitude to the race and gender gaps we exploit variation in an individual s height over time to explore how height affects wages controlling for teen height essentially eliminates the effect of adult height on wages for white men the teen height premium is not explained by differences in resources or endowments the teen height premium is partially mediated through participation in high school sports and clubs we estimate the monetary benefits of a medical treatment for children that increases height

information content and the speed of stock price adjustment the process by which security prices adjust to the release of new information is an area of study which has received much attention in accounting and finance in finance the main interest has been whether prices adjust in a rapid and unbiased manner to new information in accounting the focus has been more on whether different accounting disclosures have information content the study reported here combined both interests in that we investigated the speed of adjustment of releases of information which had different degrees of information content as illustrations dann mayers and rabb 1977 tested the sensitivity of a block trade trading rule to the speed of price adjustments this rule first suggested by grier and albin 1973 is based on the assumption that abnormal returns can be earned by purchasing shares at the block price and selling at that day s closing price dann mayers and rabb hereafter dmr found that unless one could purchase the stock within five minutes of the block trade the profitability of the grier and albin rule was seriously impaired they also found the market price to be an unbiased estimate of the closing price within 15 minutes of the block trade similarly hillmer and yu 1979 devised an alternative test for the speed of price adjustment based on a cumulative sum technique they illustrated the technique by testing for shifts in the parameters of the distributions of price changes and of transaction frequencies around five information events two earnings announcements and three defense

common trends in global volatility abstract this paper investigates the long term patterns in global foreign exchange equity and bond markets in three different trading zones namely japan europe and the united states recent advances in the measurement of volatility from high frequency data are used together with the concepts of fractional integration and cointegration the specific objective is to consider whether there are common trends that drive volatility in the global marketplace this so called commonality in volatility hypothesis is formulated using a cofractional model the results confirm that volatility in all three financial asset markets across all three trading zones share a single common trend which lends itself to interpretation as a global news stream

the creation and resolution of market uncertainty the impact of information releases on implied volatility we model and examine the impact of information releases on market uncertainty as mea sured by the implied standard deviation isd from option markets distinguishing between scheduled and unscheduled announcements we hypothesize that since the timing although not the content of scheduled announcements is known a priori the pre release isd will impound the anticipated impact of important releases on price volatility and that the isd will normally decline post release as this uncertainty is resolved conversely we hypothesize that the unexpected high volatility caused by major unscheduled releases will cause market participants to adjust upward their estimates of likely volatility over the remaining life of the option resulting in an increase in the isd our evidence supports both hypotheses the isds that we consider are from the t bond eurodollar and deutschemark options markets we examine scheduled macroeconomic news releases such as the employment report and the ppi we also find that the observed tendency for the isd to fall on fridays and rise on mondays is due to the weekday pattern of scheduled news releases

market evidence against widespread point shaving in college basketball abstract this paper proposes using market based information to investigate the likelihood of widespread point shaving in college basketball games with strong favorites information embodied in pre game money lines facilitates the calculation of the market s expectation that the game will end with a strong favorite winning but not covering the point spread a result deemed suspicious in previous studies additional market based information embodied in second half lines reveal how the market s expectation about second half play differs from pre game expectations applying our methodology to college basketball reduces previous estimates of the percentage of games thought to be consistent with potential point shaving to insignificant levels our approach can apply to other sports in which strong favorites are common

money supply announcements and the market s perception of federal reserve policy this paper investigates the reason why innovations in money supply announcements cause interest rates to change the paper empirically discriminates between the liquidity premium and the expected inflation hypotheses by directly taking into account investors expectations regarding the federal reserve s monetary policy stance the results support the liquidity premium hypothesis and the model provides an explanation for the observed time variation in the response of interest rates to money announcement surprises copyright 1990 by ohio state university press

monetary policy uncertainty and the market reaction to macroeconomic news abstract we examine whether monetary policy uncertainty influences the reaction of the equity treasury security foreign exchange and crude oil markets as well as medium term interest rates to u s macroeconomic announcements using intraday futures data we show that in the presence of higher policy uncertainty the response to macroeconomic news weakens in the stock and crude oil markets and strengthens in the treasury interest rate and foreign exchange markets in times of elevated monetary policy uncertainty macroeconomic announcements impact the financial and crude oil markets to a large extent through expectations of future monetary policy

interdependence and dynamics in currency futures markets a multivariate analysis of intraday data abstract this paper investigates long term interdependencies and short term dynamics in currency futures utilizing intraday data for six major foreign currencies the british pound deutsche mark swiss franc australian dollar canadian dollar and japanese yen lack of cointegration ci among the foreign exchange futures is found to be the prevailing mode of behavior but some temporary deviations from the no ci condition are detected there is a notable overlap between detected ci relationships and the timing of policy changes world events and regime shifts indicating that the observed cis are event driven the robustness of the ci results is checked with respect to variations in the model lag structure data period sample horizon and currency basket grouping impulse response functions irfs reveal that currency markets are in general efficient and absorb new information within the day the interdependence among currencies is found to be asymmetric

the high frequency impact of news on long term yields and forward rates is it real abstract macroeconomic news announcements move yields and forward rates on nominal and index linked bonds and inflation compensation this paper estimates the reactions using high frequency data on nominal and index linked bond yields allowing the effects of news announcements on real rates and inflation compensation to be parsed far more precisely than is possible using daily data long term nominal yields and forward rates are very sensitive to macroeconomic news announcements inflation compensation is sensitive to announcements about price indices and monetary policy however for news announcements about real economic activity such as nonfarm payrolls the vast majority of the sensitivity is concentrated in real rates accordingly most of the sizeable impact of news about real economic activity on the nominal term structure of interest rates represents changes in expected future real short term interest rates and or real risk premia rather than changes in expected future inflation and or inflation risk premia such sensitivity of real rates to macroeconomics news is hard to rationalize within the framework of existing macroeconomic models

is bad news cause of asymmetric volatility response a note this article uses a direct test of the impact of economic news on stock volatility the main interest is to test whether the asymmetric response of volatility can be due to the effect of bad news to do this this study takes items of news into account as exogenous variables the analysis is divided into two stages each of which uses different items of news as exogenous variables additional to the information provided by the residuals the first stage uses more exhaustively classified information whereas the second considers daily information as a global sign this study finds that bad news is responsible for most of the observed asymmetric behaviour of variance further this study detects that the gjr model adequately captures the impact of bad news when traders are not ready to carry out a time consuming analysis of the information

an examination of stock market return volatility during overnight and intraday periods 1964 1989 this paper examines the variance of hourly market returns during 1964 89 results indicate that return volatility falls from the opening hour until early afternoon and rises thereafter and is significantly greater for intraday versus overnight periods market variance is also shown to change significantly over time rising after nasdaq began in 1971 rising after trading in stock options began in 1973 falling after fixed commissions were eliminated in 1975 rising after trading in stock index futures was introduced in 1982 and falling after margin requirements for stock index futures became larger in 1988 copyright 1990 by american finance association

volatility in the foreign currency futures market we examine the volatility implications of around the clock foreign exchange trading with transaction data on futures contracts from the chicago mercantile exchange and the london international financial futures exchange we find higher u s european and u s japanese exchange rate volatilities during u s trading hours and higher european cross rate volatilities during european trading hours while the diclosure of private information through trading may partly explain these volatility patterns we conclude that the increased volatility is more likely driven by macroeconomic news announcements an analysis of inter and intraday data also reveals that volatility increases at times that coincide with the release of u s macroeconomic news article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

seasonality in foreign exchange volatility the paper reports further empirical evidence on seasonality in foreign exchange volatility using high frequency data using a basis of the signal plus noise framework the approach decomposes tick by tick reuters fxfx quotes into a random walk and a stationary component termed the efficient price and the pricing error respectively the efficient price is not directly observable and is an approximation of the true value the pricing error captures the deviation between the observed indicative quote and the efficient price under the proposed model daily and intraday volatilities of the efficient price are estimated a pronounced pattern of volatility is uncovered and appears related to the daily activity cycle of major organized stock exchanges it is argued that seasonality in volatility is a symptom of foreign exchange markets results confirm andersen and bollerslev s findings that significant seasonal effects are one important determinant of overall volatility at high frequencies

how does public information affect the frequency of trading in airline stocks abstract this paper examines how firm specific and macroeconomic announcements affect transaction rates in u s airline stocks using a version of the autoregressive conditional hazard framework of hamilton and jorda 2002 that incorporates market microstructure variables we show that on average trading intensity spikes prior and consequent to macroeconomic announcements but decreases around firm specific releases further when we use intraday crude oil futures returns as a proxy for industry relevant and globally important news we find that their effects are statistically significant with higher oil futures returns increasing the probability of trade

interbank contagion at work evidence from a natural experiment this article tests financial contagion due to interbank linkages for identification we exploit an idiosyncratic sudden shock caused by a large bank failure in conjunction with detailed data on interbank exposures first we find robust evidence that higher interbank exposure to the failed bank leads to large deposit withdrawals second the magnitude of contagion is higher for banks with weaker fundamentals third interbank linkages among surviving banks further propagate the shock finally we find results suggesting that there are real economic effects these results suggest that interbank linkages act as an important channel of contagion and hold important policy implications jel g01 g21 g28 e58 since the onset of the financial turmoil increased uncertainty reflected particularly in counterparty risk has led banks to hoard liquidity this has resulted in a significant decline of trading in the interbank money markets jean claude trichet president of the european central bank december 2008

the reaction of exchange rates to economic news this paper examines the short run responses of spot exchange rates to several types of economic news survey data are used to divide economic announcements into expected and unexpected components with the latter measuring news the results indicate that exchange rates are systematically related to unexpected money announcements after the october 1979 switch in federal reserve operating procedures but not before this response does not appear to have changed however after the october 1982 federal reserve regime change short run exchange rate movements are not systematically related to news on inflation or real activity

why do markets move together an investigation of u s japan stock return comovements this article explores the fundamental factors that affect cross country stock return correlations using transactions data from 1988 to 1992 we construct overnight and intraday returns for a portfolio of japanese stocks using their nyse traded american depository receipts adrs and a matched sample portfolio of u s stocks we find that u s macroeconomic announcements shocks to the yen dollar foreign exchange rate and treasury bill returns and industry effects have no measurable influence on u s and japanese return correlations however large shocks to broadbased market indices nikkei stock average and standard and poor s 500 stock index positively impact both the magnitude and persistence of the return correlations stock return cross country covariances play a key role in international finance changes in these covariances affect the volatility of portfolios and asset prices as these covariances increase one expects that a fewer domestic risks are internationally diversifiable so portfolio volatility increases b the risk premium on the world market portfolio increases 1 c the cost of capital increases for individual firms and d the domestic version of the capm becomes increasingly inadequate 2 despite the important economic consequences of changes in cross country covariances the determinants of the levels and dynamics of these covariances have been little studied from an academic