variations in trading volume return volatility and trading costs evidence on recent price formation models patterns in stock market trading volume trading costs and return volatility are examined using new york stock exchange data from 1988 intraday test results indicate that for actively traded firms trading volume adverse selection costs and return volatility are higher in the first half hour of the day this evidence is inconsistent with the admati and pfleiderer 1988 model which predicts that trading costs are low when volume and return volatility are high interday test results show that for actively traded firms trading volume is low and adverse selection costs are high on monday which is consistent with the predictions of the foster and viswanathan 1990 model academics investors and regulators alike are now intensively focused upon understanding the volatility of asset returns and its relation to trading volume this interest was undoubtedly piqued by the market break of october 1987 a time during which volatility and trading volume reached unprecedented levels but even beforehand researchers observed regular differences in the return process for various hours of the day and days of the week research concerning temporal patterns in stock market volatility and volume falls in two groups studies that document observed patterns and studies that develop models to predict patterns among the studies in the first group are oldfield and rogalski 1980 french and roll 1986 stoll and whaley 1990 harris 1986 and wood mcinish and ord 1985 who report evidence on seasonalities in daily and weekly return variances among the regularities that have been documented using interday data is that volatility is higher when the market is open than when it is closed oldfield and rogalski 1980 french and roll 1986 and stoll and whaley 1990 for example point out significant differences in return volatility between trading

is there private information in the fx market the tokyo experiment it is a common view that private information in the foreign exchange market does not exist we provide evidence against this view the evidence comes from the introduction of trading in tokyo over the lunch hour lunch re turn variance doubles with the introduction of trading which cannot be due to public information since the flow of public information did not change with the trading rules having eliminated public information as the cause we exploit the volatility pattern over the whole day to discriminate between the two alternatives private information and pricing errors three key re sults support the predictions of private information models first the vola tility u shape flattens greater revelation over lunch leaves a smaller share for the morning and afternoon second the u shape tilts upward an impli cation of information whose private value is transitory finally the morning exhibits a clear u shape when tokyo closes over lunch and it disappears when trading is introduced

international direct real estate investment a review of the literature this paper provides a critical review of research on international direct real estate investment issues to date no review article has explored the various findings of studies completed on the benefits of international real estate diversification in the past 10 years the quantity and variety of work have increased dramatically the paper is organised by how investing in a real estate asset is analysed in a mixed asset portfolio context or a real estate only portfolio context a fourth section focuses on research that has explored currency risk one of the prevailing risks associated with international investing the last section provides conclusions about the research and offers ideas for future research in this growing area of real estate investment

money supply announcements and foreign exchange futures prices for five countries since the federal reserve began targeting money supply growth in october 1979 the effects of fed money supply announcements on financial markets have been intensively examined studies have considered the impacts on financial assets including yields on short term and long term treasury securities forward interest rates exchange rates stock prices and commodity prices these studies suggest that money supply announcements have had significant effects on all these financial assets the effects however have not been consistent across time assets or countries this study adds to the money supply announcement literature focusing on foreign exchange spot and currency future prices mussa 23 provides a justification for this approach he demonstrates that exchange rates move in accord with the efficient markets theory of asset price determination in addition he finds most exchange rate changes are unexpected thus exchange rate changes generally should be related to news since unexpected changes must be due to new information how exchange rates respond to news depends on how that information alters expectations those expectations however depend on economic agents historical experience and on policymakers anticipated reactions thus the effects may vary across countries and across policymaking regimes we believe this study makes four contributions to the money announcement literature first we develop a model of money announcements where expected announcements may be important even when markets are efficient while we consider money announcements in particular the model suggests a general result even expected announcements may affect financial market variables simply by confirming prior expectations second we extend and update the prior literature by examining whether recent money supply announcements have an impact on exchange rates and whether recent impacts differ from those found through 1985 the results suggest the impact of money announcements may have diminished marginally third we extend the analysis to exchange rate currency futures comparing the reactions of spot and futures rates yields further evidence on the policy anticipation versus the expected inflation effects and fourth most prior studies of unanticipated money growth do not distinguish between positive and negative surprises if positive and negative surprises influence market prices asymmetrically however

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

monetary policy regimes expected inflation and the response of interest rates to money announcements this paper examines the response of the term structure of interest rates to weekly money announcements estimated responses for both the pre and post october 1979 periods are first presented then two competing hypotheses involving the policy anticipations and expected inflation effects are formally specified and compared with the estimated responses both hypotheses are found to be consistent with the responses but they have sharply different implications about the federal reserve s short run monetary policy by exploiting these different implications additional empirical results focusing directly on the money stock process support the policy anticipations hypothesis

does the federal reserve respond to errant money growth evidence from three monetary regimes this paper tests the hypothesis that the federal reserve responds to deviations between actual and targeted money growth with a corrective adjustment in their policy instrument the authors divide the sample period of 1975 87 into three monetary regimes their results suggest that the fed responded to errant money growth in the pre 1979 and the 1979 82 subperiods however the authors find no evidence that the fed responded to errant money growth in the post 1982 subperiod these results yield some insights into the source of the money supply announcement puzzle by lending support for what has been termed the policy anticipation effect copyright 1992 by ohio state university press

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 evolution of federal reserve credibility 1978 1984 a random coefficients kalman filter model of the response of commodity prices to weekly m1 announcements indicates a gradual evolution in the credibility of the federal reserve as an inflation fighter the october 1979 announcement of a change in monetary policy aimed at reducing inflation did not result in an immediate increase in credibility and the october 1982 announcement of a policy reversal did not diminish credibility credibility does vary with the underlying rate of inflation which shows that markets pay attention to policy results not simply policy announcements copyright 1989 by mit press

tests for parameter instability in regressions with i 1 processes this article derives the large sample distributions of lagrange multiplier lm tests for parameter instability against several alternatives of interest in the context of cointegrated regression models the fully modified estimator of phillips and hansen is extended to cover general models with stochastic and deterministic trends the test statistics considered include the supf test of quandt as well as the lm tests of nyblom and of nabeya and tanaka it is found that the asymptotic distributions depend on the nature of the regressor processes that is if the regressors are stochastic or deterministic trends the distributions are noticeably different from the distributions when the data are weakly dependent it is also found that the lack of cointegration is a special case of the alternative hypothesis considered an unstable intercept so the tests proposed here may also be viewed as a test of the null of cointegration against the alternative of no cointegration the tests are applied to three data se

regime changes in international real interest rates are they a monetary phenomenon in this paper we use the bai and perron 1998 2001 2003 methodology to test for multiple structural breaks in the mean real interest rate for 13 industrialized countries we find extensive evidence of structural breaks in the mean real interest rate for all 13 countries in an attempt to explain the breaks in international real interest rates we also test for multiple structural breaks in the mean inflation rate for the 13 countries once again we find extensive evidence of structural breaks in the mean inflation rate for all of the countries interestingly the breaks in inflation rates and real interest rates often coincide with increases decreases in the mean inflation rate as we move from one regime to the next typically associated with decreases increases in the mean real interest rate

inflation and real short term interest rates a kalman filter analysis of the term structure this paper applies the kalman filter technique to look at the relationship among real interest rates inflation and the term structure of interest rate under the expectations hypothesis using quarterly data from 1960 1 to 1991 1 for inflation three month nominal short term interest rates and long term yields with maturities from one to five years this paper finds that the expectations hypothesis of the term structure holds up well for the data under the assumptions of a time varying premium and a random walk real interest rate in other words a reconciliation of the expectations hypothesis with the data is attained by assuming time varying term premium and non stationary real interest rate

trading mechanisms and stock returns an empirical investigation this paper examines the effects of the mechanism by which securities are traded on their price behavior we compare the behavior of open to open and close to close returns on nyse stocks given the differences in execution methods applied in the opening and closing transactions opening returns are found to exhibit greater dispersion greater deviations from normality and a more negative and significant autocorrelation pattern than closing returns we study the effects of the bid ask spread and the price adjustment process on the estimated return variances and covariances and discuss the associated biases we conclude that the trading mechanism has a significant effect on stock price behavior

trading halts and market activity an analysis of volume at the open and the close this paper analyzes how the daily opening and closing of financial markets affect trading volume we model the desire to trade at the beginning and end of the day as a function of overnight return volatility nyse data from 1933 88 indicate that closing volume is positively related to expected overnight volatility while volume at the open is positively related to both expected and unexpected volatility from the previous night we interpret the symmetric response of trading at the open and the close to expected volatility as being due to investor heterogeneities in the ability to bear risk when the market is closed this desire of investors to trade prior to market closings indicates a cost of mandating marketwide circuit breakers

one minute in the life of the dm us public news in an electronic market abstract public news can be expected to change market prices but unlike public information there are differing expectations about the impact hence trading is necessary for the market to process these divergent views a surprise announcement of an increase in german interest rates coupled with concurrent transactions data enables us to study in detail dealers reactions the patterns observed are consistent with dealers practice to book targeted profits immediately if possible in the face of uncertainty evidence also shows that the speculative activity by traders in initial reaction to the news destabilized the market for the next 2 h

the response of short term interest rates to weekly money announcements each friday at 4 10 p m est the federal reserve announces its estimate of the narrowly defined money stock for the statement week ending nine days previously these money announcements have become one of the main events in financial markcts if for no other reason than the fact that significant movements in interest rates have been associated with large unanticipated changes in the money stock moreover since the late 1970s interest rate fluctuations in response to money stock announcements have dramatically increased over the 1l 2 hour intervals spanning the weekly announcements for example the variance of the change in the threemonth treasury bill yield in the three years since october 1979 is more than thirty times larger than that of the previous two year period l two factors may account for a large portion of the increased volatility of shortterm interest rates first on october 6 1979 the federal reserve adopted a reserve aggregate approach to monetary control replacing a procedure that emphasized stability of short term yields second despite the greater emphasis placed on monetary control the variance of weekly announced changes in the money stock has risen by about 70 percent since late 1979 in turn if greater volatility of announced changes makes future changes more difficult to predict the volatility of unanticipated weekly changes in money would have also increased 2 thus if financial markets are efficient and if weekly money announcements contain relevant information larger unanticipated changes in money may have caused larger fluctuations in interest rates

foreign investors influence on the real estate market capitalization rate evidence from a small open economy abstractthis article adds to the scarce literature on the influence of international investment flows on local real estate values we hypothesize that a greater foreign investor presence in a real estate market results in a lower capitalization rate and examine whether this holds true in the helsinki cbd office market in finland this market provides an interesting case study by being part of a small open economy in which the presence of foreign investors has substantially varied over time the dynamic ols estimations using data for the period 1990 2015 provide support for the hypothesis the baseline results show a highly statistically significant negative impact of foreign investor participation on the capitalization rate the point estimates indicating that a 10 point growth in the share of foreign buyers of the total transaction volume decreases the cap rate by approximately 30 basis points

public information arrival we develop a measure of public information flow to financial markets and use it to document the patterns of information arrival with an emphasis on the intraday flows the measure is the number of news releases by reuter s news service per unit of time we find that public information arrival is nonconstant displaying seasonalities and distinct intraday patterns next we relate our measure of public information to aggregate measures of intraday market activity our results suggest a positive moderate relationship between public information and trading volume but an insignificant relationship with price volatility

the effects of money announcements under alternative monetary control procedures the response of interest rates to money announcement surprises is theoretically exam ined in this paper in the models developed not only changes in oper ating procedures but also reserve requirement systems are found to potentially affect the response the response also varies depending o n the desired degree of monetary control moreover under the current two week contemporaneous reserve requirements adopted in february 19 84 the responses in the first and second weeks of the two week reser ve maintenance period may differ previous empirical results conform to the predictions of the theoretical models copyright 1987 by ohio state university press

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

us day of the week effects and asymmetric responses to macroeconomic news abstract this study considers the joint influence of contemporaneous and lagged responses to macroeconomic news in explaining us day of the week effects macroeconomic news is measured by movements in large firms stock prices the average response of smaller stocks to these movements is abnormally high on mondays especially in down markets after corrections for these asymmetries the us day of the week effect weakens substantially for most size ranked portfolios in most of the six approximately equal subperiods between 1962 and 1992 these findings suggest that seasonals in processing macroeconomic news account for much of the day of the week effect in equity returns

high and volatile real interest rates where does the fed fit in the federal reserve s new procedures for the conduct of monetary policy introduced on october 6 1979 have been the subject not only of considerable academic and political interest but also of intense debate b friedman 1982 roley 1982 walsh 1982 1984 mascaro and meltzer 1983 among others the fed s new operating procedures generally are perceived to have resulted in abnormally high and volatile real interest rates and thus to have contributed to if not been totally responsible for the deepest recession in postwar history in this paper we address the following question was the advent of the increased volatility and level of the real rate of interest concurrent with the fed s october 1979 change in operating procedures that is was the real rate of interest high and more volatile immediately after the october 1979 change in policy procedures in which case we might infer a connection between the fed s change in policy procedures and the increased volatility and level of the real rate or did the real rate become high and more volatile some time following the policy change which might lead us to conclude that the increased volatility and the increased level of the real rate was connected to some other event s occurring after the october 1979 policy change

on real interest rate dynamics and regime switching abstract we find evidence of regime switching dynamics in the usa and the uk real interest rates over the period 1881 2003 for the uk there is a regime in which the real interest rate displays a relatively stronger mean reversion and a regime in which it displays a relatively weaker mean reversion the former regime is characterized by a relatively larger error in the estimation of the reversion parameter and higher volatility for the usa the two regimes differ in volatility the probability of transition from one regime to another is found to be significantly related to the inflation rate regime and to the political regime the results highlight the importance of regime switching in the dynamics of the real interest rate as well as the role of inflation and political regimes in explaining this switching

pre announcement effects news effects and volatility monetary policy and the stock market abstract i examine pre announcement and news effects on the stock market in the context of public disclosure of monetary policy decisions the results suggest that the stock market tends to be relatively quiet conditional volatility is abnormally low on days preceding regularly scheduled policy announcements although this calming effect is routinely reported in anecdotal press accounts it is statistically significant only over the past four to five years a result that i attribute to changes in the federal reserve s disclosure practices in early 1994 the paper also looks at how the actual interest rate decisions of policy makers affect stock market volatility the element of surprise in such decisions tends to boost stock market volatility significantly in the short run and positive surprises higher than expected values of the target federal funds rate tend to have a larger effect on volatility than negative surprises the implications of the results for broader issues in the finance and economics literatures are also discussed

the impact of public information on the stock market we study the relation between the number of news announcements reported daily by dow jones company and aggregate measures of securities market activity including trading volume and market returns we find that the number of dow jones announcements and market activity are directly related and that the results are robust to the addition of factors previously found to influence financial markets such as day of the week dummy variables news importance as proxied by large new york times headlines and major macroeconomic announcements and non information sources of market activity as measured by dividend capture and triple witching trading however the observed relation between news and market activity is not particularly strong and the patterns in news announcements do not explain the day of the week seasonalities in market activity our analysis of the dow jones database confirms the difficulty of linking volume and volatility to observed measures of information

shock effects on stocks bonds and exchange rates abstract tick data and newswire searches are used to find events that led to large and rapid price changes in a stock future a bond future and three exchange rate futures knowledge of these events may be useful in future work they have the advantages that they are truly surprises and that the sign of their effect on each financial instrument is known the events are used in this study to analyze the effects of three types of events monetary price and real on the five instruments

buyer exuberance and price premium it has been demonstrated that the real estate market disciplines irrational price premiums however the persistence of price premiums begs the question of what causes price premiums in the first place this paper seeks to examine two explanations for price premiums the conventional information asymmetry explanation and the buyer exuberance explanation as motivated by behavioural studies the results show that information asymmetry explains price premiums and this finding is robust across two sub hypotheses tested namely information differences arising from market familiarity and product characteristics in addition we find that price premiums are also caused by buyer exuberance specifically exuberance arising from representativeness purchasing power and anchoring effects

territorial competition and property market process an exploratory analysis this paper argues that the emerging research on territorial competition should be supplemented by an explicit consideration of the role of real property and property market process in shaping urb

stock market structure and volatility the procedure for opening stocks on the nyse appears to affect price volatility an analytical framework for assessing the magnitude of the structurally induced volatility is presented the ratio of variance of open to open returns to closeto close returns is shown to be consistently greater than one for nyse common stocks during the period 1982 through 1986 tbe greater volatility at the open is not attributable to the way in which public information is released since both the opento open return and the close to close return span the same period of time instead the greater volatility appears to be attributable to private information revealed in trading and to temporaryprice deviations induced by specialist and other traders the implied cost of immediacy at the open is significantly higher than at the close other empirical evidence in this article documents the volume of trading at the open the time delays between the exchange opening and the first transaction in a stock the difference in daytime volatility versus overnight volatility and the extent to which volatility is related to trading volume

u k and u s trading of british cross listed stocks an intraday analysis of market integration this article analyzes intraday patterns for u k and u s trading of british cross listed stocks for each market the intraday patterns for these stocks closely resemble those of otherwise similar non cross listed stocks there is a 2 hour period each day when cross listed stocks are traded both in new york and in london this overlap is characterized by concentrated trading as private information originating in new york gets incorporated into prices in both markets cross border competition for order flow tends to reduce already declining spreads in london by contrast new york specialists maintain high spreads during the overlap overall the evidence indicates that order flow for cross listed securities is segmented article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the credit view financial announcements and interesr rate responses abstract proponents of the credit view have argued that aggregate commercial bank lending decisions have strong macro economic effects this view is in contrast to the monetarist view that it is sufficient to consider the liability side of the banking sector s balance sheet in analyzing the economic outlook in this paper we examine whether or not financial markets reacted to unexpected changes in aggregate commercial bank lending during much of the 1980s in contrast to the implications of the credit view no evidence of a significant reaction to such shocks is uncovered however there is evidence to suggest that unexpected commercial paper activity is important to financial markets but the sign of the association is the opposite of that predicted by the credit view

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

political regime change and the real interest rate the effect of changes in policy regimes on real interest rates has important implications for financial and economic theory there is little current evidence that policy regime changes have any impact on the level of real interest rates we use large political changes as our measure of policy regime changes changes in presidential administration are more significantly correlated with real rate changes than are changes in the federal reserve chair or the mean shift points identified by garcia and perron 1996 using time series methods we also show that change of party control of congress is a significant factor explaining real rates we argue that theoretical models built on the assumptions of constant or policy invariant real interest rates are at variance with the empirical evidence

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

monetary policy and interest rates abstract in the eighties u s interest rates have been characterized by high volatility often related to the fed changes in operating procedure a semiparametric estimator for heteroskedasticity and the diagnostic provided by the bounded influence estimator are applied to a short term interest rate equation attempts to model changes in operating procedure by means of exogenous dummy variables are not satisfactory heteroskedasticity is detected and corrected by gls and the chosen semiparametric estimator the estimates are compared by means of bounded influence regressions which reveal that the semiparametric estimates improve upon gls since the latter does not fully correct for heteroskedasticity

unobserved component time series models with markov switching heteroscedasticity changes in regime and the link between inflation rates and inflation uncertainty in this article i first extend the standard unobserved component time series model to include hamilton s markov switching heteroscedasticity this will provide an alternative to the unobserved component model with autoregressive conditional heteroscedasticity as developed by harvey ruiz and sentana and by evans and wachtel i then apply a generalized version of the model to investigate the link between inflation and its uncertainty u s data gross national product deflator 1958 1 1990 4 i assume that inflation consists of a stochastic trend random walk component and a stationary autoregressive component following ball and cecchetti and a four state model of u s inflation rate is specified by incorporating regime shifts in both mean and variance structures i analyze the interaction of mean and variance over long and short horizons the empirical results show that inflation is costly because higher inflation is associated with higher long run uncertainty

the dependence between hourly prices and trading volume this study provides evidence on joint characteristics of hourly common stock trading vol ume and returns on the new york stock exchange average volume traded shows signifi cant differences across trading hours of the day and across days of the week average returns differ across hours ofthe day and to some extent across days ofthe week there is a strong contemporaneous relation between trading volume and returns and also a rela tion between trading volume and returns lagged up to four hours furthermore the trading volume returns relation is steeper for positive returns than for nonpositive returns

rational expectations econometric analysis of changes in regime an investigation of the term structure of interest rates abstract this paper is of interest both for its methodological contribution of new tools for analyzing rational expectations models and for its substantive conclusions concerning the term structure of interest rates during the monetary experiment of october 1979 the paper studies systems subject to changes in regime interpreted here as occasional discrete shifts in the parameters governing the time series behavior of exogenous economic variables the specification is shown to be quite tractable both theoretically and empirically the technique is used to analyze yields on three month treasury bills and ten year treasury bonds during 1962 to 1987 a constant parameter linear model for short term rates is shown to be inconsistent both with the univariate time series properties of short rates and with the observed bivariate relation between long and short rates under the expectations hypothesis of the term structure an alternative nonlinear model that admits the possibility of changes in regime affords a much better description of the univariate process for short rates moreover the cross equation restrictions implied by the expectations hypothesis of the term structure are consistent with the nonlinear specification indeed the residuals of the restricted relation have a standard error of only 0 8 basis points this is a third less than that of a completely unrestricted linear regression of long rates on short rates and compares with an unconditional standard deviation of long rates of 142 basis points i conclude that once the recognition by bond traders of changes in regime is taken into account the expectations hypothesis of the term structure of interest rates holds up fairly well for these data

multiple regimes in u s monetary policy a nonparametric approach we use two different nonparametric methods to determine whether there were multiple regimes in u s monetary policy over the period 1955 2003 we model monetary policy using two different versions of taylor s rule for the nominal interest rate target by contrast with parametric tests for regime changes the nonparametric methods we use allow the data to determine the dimensions on which to split the sample for purposes of estimating the coefficients of the taylor rule we find evidence for a few structural breaks and consistent agreement between our two nonparametric methods on the dating of those breaks

the time varying behaviour of real interest rates a re evaluation of the recent evidence a time varying parameter model with markov switching conditional heteroscedasticity is employed to investigate two sources of shifts in real interest rates 1 shifts in the coefficients relating the ex ante real rate to the nominal rate the inflation rate and a supply shock variable and 2 unconditional shifts in the variance of the stochastic process the results underscore the importance of modelling continual change in the ex ante real rate in terms of other economic variables rather than relying on a statistical characterization that permits only a limited number of discrete jumps in the mean of the process copyright 1999 john wiley sons ltd

is public information really irrelevant in explaining asset returns abstract using aggregated data on macroeconomic announcements may disguise the effect of public information on asset returns we use a disaggregated procedure that captures the impact of each announcement on nikkei returns and find that public information does affect the market

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

the informational efficiency of weekly money announcements an econometric critique studies of the weekly money announcement have found markets to be informationally efficient we demonstrate that this result apparently is related to one or more sources of bias and measurement error that have been introduced to the estimating equations of previous studies after correcting for these sources of bias and estimating the modified model over the samples employed in earlier studies we still find evidence to reject the hypothesis of informational efficiency an alternative explanation is that auxiliary assumptions imposed for empirical convenience introduce measurement error that affects standard tests of the efficient markets hypothesis

a political model of monetary policy with application to the real fed funds rate abstract we construct an empirical model of u s monetary policy assuming that the federal reserve is an ordinary federal bureaucracy we use the real federal funds rate as our policy measure and show the existence of significant executive legislative and bureaucratic influence on the real rate of interest from 1961 to 1996 we find that presidential party is an adequate statistical measure of executive influence and that the voting scores of the senate banking committee leadership best represent legislative influence we argue that political changes cause systematic and predictable changes in monetary policy

the relation between price changes and trading volume a survey this paper reviews previous and current research on the relation between price changes and trading volume in financial markets and makes four contributions first two empiri cal relations are established volume is positively related to the magnitude of the price change and in equity markets to the price change per se second previous theoretical research on the price volume relation is summarized and critiqued and major insights are emphasized third a simple model ofthe price volume relation is proposed that is consis tent with several seemingly unrelated or contradictory observations and fourth several directions for future research are identified

trading breaks and asymmetric information the option markets abstract we find that weekend holiday and overnight trading breaks generate excessive perceived risk in the option markets presumably due to asymmetric information which in turn encourages uninformed option traders to postpone trading this perceived risk subsides after two days accompanied by an increase in the option trading volume and the underlying index s actual price volatility these results shed light on the informational role of index options and suggest that the theoretical models results regarding information processing and price discovery in the presence of private information are not limited to single stocks but also apply to the market as a whole

the volatility of short term interest rates an empirical comparison of alternative models of the term structure of interest rates we estimate and compare a variety of continuous time models of the short term riskless rate using the generalised method of moments we find that the most successful models in capturing the dynamics of the short term interest rate are those that allow the volatility of interest rate changes to be highly sensitive to the level of the riskless rate a number of well known models perform poorly in the comparisons because of their implicit restrictions on term structure volatility we show that these results have important implications for the use of different term structure models in valuing interest rate contingent claims and in hedging interest rate risk

the changing influence of money and monetary policy on exchange rates foreign exchange dealers said the american currency got an additional boost after the federal reserve reported that the nation s money supply rose 700 million in the latest week a development that is likely to put upward pressure on interest rates most economists had been expecting a decline in the money supply figures the wall street journal 25 january 1982 14 i introduction the importance of the linkage between money and asset prices such as interest rates and exchange rates is now well understood friedman 1990 12 writes given the familiar dependence of imports and exports on real exchange rates together with the dollar s evident relationship to interest rates the combination of a larger foreign sector in the u s economy and flexible exchange rates has clearly opened new avenues for monetary policy to affect economic activity however the precise nature of the relationship between money and exchange rates has long been a topic for research in international economics with the adoption of a system of floating exchange rates by most of the industrialized countries in march 1973 and the development of the rational expectations efficient markets hypotheses attempts to model observed fluctuations in exchange rates have focused on incorporating the important role of expectations of particular interest to the research in this paper is the dornbusch 1976 overshooting model which provided the structural foundation for the work of engel and frankel 1984 in the money announcements literature in the money announcements literature researchers employed unanticipated money announcements defined as the difference between announced and expected m1 to examine the linkage between money and asset prices as hakkio and pearce 1985 point out the research on foreign exchange rates in this laboratory was motivated by mussa s 1979 empirical findings in support of the efficient markets theory i e changes in exchange rates are unpredictable and are largely the result of the impact of new information on expectations in this literature researchers commonly regressed changes in the exchange rate on unanticipated money over sample periods which coincided with different policy regimes at the federal reserve to determine if the coefficient on unanticipated money say b sub 1 varied from one policy regime to another overall their findings uncover a significant link between unanticipated money and exchange rates and the size sign and significance of b sub 1 varies from one sample period to another 1 while suggestive the apparent link between changes in b sub 1 and changes in fed policy regimes is difficult to evaluate absent a model which formally incorporates such a link 2 thus my objective in this paper is to develop a basic theoretical empirical link between fluctuations in b sub 1 and changes in fed policy regimes i begin by extending the important work of engel and frankel 1984 in section ii to incorporate a policy feedback parameter g sub 1 in the money supply process which will represent the rational expectation of the type of monetary control regime in place at the federal reserve at the time of a money announcement it is shown that the magnitude of the response of exchange rates to an unanticipated announcement is mainly driven by agents expectations of the federal reserve s response to the deviation of the actual money supply from a pre specified target in section iii the time varying response of the dollar german mark exchange rate to weekly unanticipated money announcements b sub 1t and the time varying policy feedback parameter g sub 1t which reflects the adjustment of the federal funds rate to money away from target are estimated on a weekly basis using these estimates the variation of the coefficient b sub 1t vis a vis the changes in g sub 1t is examined over the january 1978 to december 1982 sample period the results provide considerable support for the hypothesized link between parameters b

does the beige book move financial markets about two weeks prior to each federal open market committee fomc meeting the federal reserve releases a description of economic activity in a document called the beige book by creating a quantitative index of these qualitative reports we examine whether the content of the beige book affects asset prices the results indicate that more positive beige book reports on economic growth are associated with increases in interest rates particularly intermediate and long term rates but not after controlling for several other macroeconomic indicators the results are consistent with markets viewing the report as a summary indicator of economic growth but not of monetary policy moves in the near term

the response of interest rates to the federal reserve s weekly money announcements the puzzle of anticipated money abstract researchers using the survey conducted by money market services inc have found that the anticipated component in the federal reserve s weekly money supply announcement is negatively correlated with the post announcement change in market yields we prove that eliminating a downward bias in the measure of anticipated money can in theory eliminate this puzzle but that improving the efficiency of an already unbiased measure cannot we find using canadian as well as u s interest rate data that correcting the downward bias in the survey measure reduces but does not eliminate the role of anticipated money

unanticipated money and interest rates evidence on the relationship between unanticipated money and interestrates has been provided by two types of studies first several researchers have investigated the relationship using quarterly data second a number of researchers have examined the effect of money announcement surprises on interest rates in both instances the correlation between money surprises and interest rates has usually been found to be non negative this paper first provides an interpretation of the correlation between unanticipated money and interest rates in terms of federal reserve policy objectives and operating procedures then the correlation of unanticipated money and both short and long term interest rates is examined over weekly intervals combining several aspects of the previous quarterly and announcement studies in addition the distinction between unpredicted and unperceived money also is considered this abstract was borrowed from another version of this item

estimation of time varying adjusted probability of informed trading and probability of symmetric order flow shock summary recently duarte and young 2009 studied the probability of informed trading pin proposed by easley et al 2002 and decomposed it into two parts the adjusted pin apin as a measure of asymmetric information and the probability of symmetric order flow shock psos as a measure of illiquidity they provide some cross section estimates of these measures using daily data over annual periods in this paper we propose a method to estimate daily apin and psos by extending the method in tay et al 2009 using high frequency transaction data our empirical results show that while pin is positively contemporaneously correlated with variance apin is not on the other hand psos is positively correlated with daily average effective spread and variance which is consistent with the interpretation of psos as a measure of illiquidity compared to apin psos exhibits clustering and sporadic bursts over time copyright 2012 john wiley sons ltd

a transaction data study of weekly and intradaily patterns in stock returns abstract weekly and intradaily patterns in common stock prices are examined using transaction data for large firms negative monday close to close returns accrue between the friday close and the monday open for smaller firms they accrue primarily during the monday trading day for all firms significant weekday differences in intraday returns accrue during the first 45 minutes after the market opens on monday mornings prices drop while on the other weekday mornings they rise otherwise the pattern of intraday returns is similar on all weekdays most notable is an increase in prices on the last trade of the day

price formation on stock exchanges the evolution of trading within the day prior analyses of prices of the nyse and other exchanges find that transitory price volatility is greater at the open of trading than at the close we extend this line of research by using 40 years of hourly dow jones 65 composite price index data to estimate transitory volatility throughout the trading day our results indicate that transitory volatility steadily declines during the trading day we find a similar intraday decline in transitory volatility for a 2 1 2 year sample of the individual firms in the dow jones 30 industrials index the results are consistent with the hypothesis that trading aids price formation and do not support the argument that particular trading mechanisms are the source of greater volatility at the open of trading article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

monetary regime changes and the behavior of ex ante real interest rates a multi country study abstract previous research has found that u s monetary regime changes are related to changes in the behavior of ex ante real interest rates this paper examines monetary regime changes in other countries to test whether changes in expected real interest rates are related to monetary regime changes in a systematic manner the results show that while real rates have not been constant across monetary regimes the characteristics of the real rate process shifts differ across countries this evidence is consistent with theories that predict the neutrality of monetary regime changes with respect to real variables

the price variability volume relationship on speculative markets this paper concerns the relationship between the variability of the daily price change and the daily volume of trading on the speculative markets our work extends the theory of speculative markets in two ways first we derive from economic theory the joint probability distribution of the price change and the trading volume over any interval of time within the trading day and second we determine how this joint distribution changes as more traders enter or exit from the market the model s parameters are estimated by fiml using daily data from the 90 day t bills futures market the results of the estimation can reconcile a conflict between the price variability volume relationship for this market and the relationship obtained by previous investigators for other speculative markets this paper concerns the relationship between the variability of the daily price change and the volume of trading on speculative markets previous empirical studies 2 3 6 12 14 16 of both futures and equity markets always find a positive association between price variability as measured by the squared price change ap2 and the trading volume 2 there are two explanations for the relationship clark s 2 explanation which is secondary to his effort to explain why the probability distribution of the daily price change is leptokurtic emphasizes randomness in the number of within day transactions in clark s model the daily price change is the sum of a random number of within day price changes the variance of the daily price change is thus a random variable with a mean proportional to the mean number of daily transactions clark argues that the trading volume is related positively to the number of within day transactions and so the trading volume is related positively to the variability of the price change the second explanation is due to epps and epps 6 their model examines the mechanics of within day trading the change in the market price on each within day transaction or market clearing is the average of the changes in all of the traders reservation prices epps and epps assume there is a positive relationship between the extent to which traders disagree when they revise their reservation prices and the absolute value of the change in the market price that is an increase in the extent to which traders disagree is associated with a larger absolute price change the price variability volume relationship arises then because the volume of trading is positively related to the extent to which traders disagree when they revise their reservation prices

public information arrival and volatility of intraday stock returns abstract this study employs firm specific announcements as a proxy for information flows and investigates the information volatility relation using high frequency data from the australian stock exchange our analysis reveals a positive and significant impact of the arrival rate of the selected news variable on the conditional variance of stock returns even after controlling for the potential effects of trading volume and high opening volatility furthermore the inclusion of the news variable in the conditional variance equation of the generalized autoregressive conditional heteroscedastic model also reduces volatility persistence especially with intraday data combined with the evidence that news arrivals display a very strong pattern of autocorrelation our results are consistent with the mixture of distribution hypothesis which attributes conditional heteroscedasticity of stock returns to time dependence in the news arrival process