trading volume and information revelation in stock markets i consider a market microstructure model in which the rates of public and private informa tion arrival are probabilistic the latter depends on the availability of private information that is stochastically changing over time in equilibrium traders estimate the availability of private information using past periods trading volume and use this information to adjust their strategies the time series properties include contemporaneous correlation between price variability and volume and autocorrelation in price variability similar to garch the model explains why trading volume contains useful information for predicting volatil ity and provides predictions on the limit and market order placement strategies of traders

exchange rates interest rates and current account news some evidence from australia abstract this paper investigates the effects of the australian current account news on exchange rates and interest rates for the period july 1985 to december 1992 the results indicate that the australian dollar depreciated and interest rates rose as a result of an announcement of a larger than expected current account deficit this is consistent with the view that market participants expected a foreign exchange market intervention sale of the australian dollar by the reserve bank of australia and they used the portfolio balance model of exchange rate determination when responding to the news in addition significant structural breaks were found and the analysis shows that after january 1990 the news affected neither exchange rates nor interest rates

inventory announcements jump dynamics volatility and trading volume in u s energy futures markets abstract this paper applies nonparametric methods to identify jumps in daily futures prices and intraday jumps surrounding inventory announcements of crude oil heating oil and natural gas contracts traded on the new york mercantile exchange the sample period of our intraday data covers january 1990 to january 2008 we have obtained several interesting empirical results 1 large volatility days are often associated with large jump components and large jump components are often associated with the energy information administration s inventory announcement dates 2 the volatility jump component is less persistent than the continuous sample path component 3 volatility and trading volume are higher on days with a jump at the inventory announcement than on days without a jump at the announcement furthermore the intraday volatility returns to normal faster following inventory announcements with jumps than after announcements without jumps

weather and intraday patterns in stock returns and trading activity abstract we examine the relation between weather in new york city and intraday returns and trading patterns of nyse stocks while stock returns are found to be generally lower on cloudier days cloud cover has a significant influence on stock returns only at the market open there are significantly more seller initiated trades when there is more cloud cover at the market open which is consistent with the return results cloudy skies are associated with higher volatility and less market depth over the entire trading day finally cloud cover is not significantly correlated with spread measures and turnover ratios the findings overall suggest that weather has a significant influence on investors intraday trading behavior

disagreement and asset prices abstract how do differences of opinion affect asset prices do investors earn a risk premium when disagreement arises in the market despite their fundamental importance these questions are among the most controversial issues in finance in this paper we use a novel data set that allows us to directly measure the level of disagreement among wall street mortgage dealers about prepayment speeds we examine how disagreement evolves over time and study its effects on expected returns return volatility and trading volume in the mortgage backed security market we find that increased disagreement is associated with higher expected returns higher return volatility and larger trading volume these results imply that there is a positive risk premium for disagreement in asset prices we also show that volatility in and of itself does not lead to higher trading volume instead only when disagreement arises in the market is higher uncertainty associated with more trading finally we are able to distinguish empirically between two competing hypotheses regarding how information in markets gets incorporated into asset prices we find that sophisticated investors appear to update their beliefs through a rational expectations mechanism when disagreement arises

exchange rate overshooting the trade balance and rational expectations abstract this paper presents a model of exchange rate determination characterized by imperfect asset substitutability between domestic and foreign bonds sticky goods market prices and rational expectations the model is used to analyze the response of the exchange rate to a step change in relative money supplies the assumption of imperfect asset substitutability permits introduction into the analysis of trade flows which respond to relative price changes these flows create non monotonic exchange rate adjustments to long run equilibrium these non monotonic adjustments are consistent with rationality and may lead to short run undershooting or overshooting

volume and skewness in international equity markets abstract we examine the relation between trading volume and skewness in 11 international stock markets using daily and monthly data from january 1980 to august 2004 we construct single equation and var models of the relation between the first three moments of market returns and trading volumes our results show hitherto unrecognised channels of influence and support the investor heterogeneity approach to explaining return asymmetries

prices output and the balance of payments in an open economy with rational expectations abstract the paper outlines an open economy version of the lucas competitive equilibrium rational expectations model it analyses the determination of output prices exports imports and the exchange rate under fixed and floating exchange rate regimes where information on the current exchange rate is used to infer the current values of foreign and domestic monetary shocks output is influenced by both foreign and domestic monetary shocks but independent of systematic foreign and domestic monetary growth under both exchange rate regimes flexible exchange rates insulate the domestic economy from systematic foreign monetary growth

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

economic news exchange rates and interest rates the paper esamines the post october 1979 response of exchange rates and interest rates to the new information contained in the first announcement of fifteen us macroeconomic series illarkets respond primarily to monetary news but also to news about the trade deficit domestic inflation and variables that reflect the state of the business cycle for all fifteen macroeconomic variables an increase decrease in interest rates is accompanied by an appreciation depreciation of the dollar which is consistent with models that stress price rigidity and absence of purchasing power parity the effect of economic news on asset prices has received increasing attention in the economic literature because an outcome of the efficient markets rational expectations hypothesis is that flesible asset prices change the moment new information about future fundamentals arrives in the market in the exchange rate literature the role of news has gained importance because structural models have failed to predict most of the variation in exchange rates during the 1970s see imeese and rogoff 1983 researchers were naturally led to investigate the types of news that make exchange rates so volatile and to utilize news in order to test which model of exchange rate determination is consistent with the floating eschange rate experience notable studies are those of dornbusch 1980 frenkel 1981 edwards 1982a b 1983 copeland 1984 and rose 1984 in this paper i also examine the effects of macroeconomic news on eschange rates but i adopt a different more direct strategy one that complements previous work avoids some of its shortcomings and promises interesting conclusions i examine the instantaneous response of exchange rates the moment a piece of economic news hits the market if one can isolate the exact time during a business day when news arrives it is straightforward to examine the response of exchange rates because financial data are continuously available the advantages of the present methodology are many first it is possible to identify the exact types of economic news and how they affect exchange rates second the simultaneity bias which plagues the previous literature on exchange rates and news is not present here the independent variables that represent news can be interpreted as causal the paper was presented at the 1985 meeting ofthe american economic association the author wishes to thank sebastian edwards r w hafer nicholas karamouzis andrew rose and two anonymous referees for helpful comments kim rupert of the money market services for providing the survey data soo kounne for able research assistance and barnard college for research support

official intervention in the foreign exchange market or bet against the central bank evaluating official foreign exchange intervention during the 1970s using friedman s profit criterion shows that central banks have failed to stabilize the exchange markets and have lost billions of dollars the monetary authorities have resisted rate movements which results in a misallocation of resources when there is a shift in the equilibrium exchange rate counterspeculation by exchange traders reduces the destabilizing effect of central bank intervention and the consequent loss in economic welfare

relationships among exchange rates intervention and interest rates an empirical investigation abstract this study uses herefore unavailable daily data on official intervention to test the joint hypotheses of perfect asset substitutability and exchange market efficiency this joint hypothesis is generally soundly rejected for six exchange rates over various sample periods in contrast to evidence elsewhere from weekly or monthly data lagged intervention is a significant determinant of realized profits in about half the cases this evidence is consistent with existence of a portfolio balance channel at least in the short run other evidence indicates that coordinated intervention sometimes may have an impact significantly different from intervention by one central bank alone

international interest rates and us monetary policy announcements evidence from hong kong and singapore this paper investigates the responses of market interest rates to us monetary policy announcements for the us and two emerging economies hong kong and singapore which are similar on many respects but have experienced opposite exchange rate regimes in the last twenty years our results based on market expectations extracted from federal fund futures rates document that fomc announcements significantly affect the term structure of interest rate in the us and both asian countries further international interest rate differentials around fomc meeting dates tend to be negative for short maturities with the impact gradually dissipating as bond maturity increases finally for the case of singapore we find that domestic interest rates react to both external and domestic monetary policy announcements with a magnitude that is larger over the full bond maturity spectrum for domestic announcements these results are robust to time varying futures risk premia and alternative measures of interest rates expectations

international market response to announcements of us macroeconomic data abstract this paper presents empirical evidence relating the announcement effects of us money supply and inflation cpi and ppi to eurocurrency interest rates and the foreign currency markets both spot and forward for seven industrial countries over the period 1977 1982 the results indicate that unanticipated components of announced changes in money supply have a significant positive effect on eurocurrency interest rates and a negative effect implying dollar appreciation on the spot exchange rates unanticipated changes in ppi have a positive significant effect on interest rates a small surprisingly negative impact on spot exchange rates and a positive effect on gold prices the cpi has no effect on either market

informational linkages across trading regions evidence from foreign exchange markets abstract using a new high frequency data set from electronic broking services ebs this paper examines informational linkages in the euro dollar and dollar yen exchange rates across five trading regions asia pacific the asia europe overlap europe the europe america overlap and america information is proxied by exchange rate return direction of return volatility trading activity and order flow we find that informational linkages are statistically significant at both own region and inter region levels but own region spillovers dominate in economic significance especially for volatility and trading activity in addition order flow spillovers from the europe america overlap trading region are the most important source of spillovers to other trading regions for both currency pairs

daily monetary impulses and security prices this paper uses swiss data to study the real long run effects of monetary policy daily unexpected changes in the monetary base are found to be negatively correlated with security price changes this result is unaffected when implicitly following geske and roll 1983 we try to measure the autonomous component of monetary policy by taking into account a reaction function of monetary policy to changes in real variables

the trade balance and real exchange rate under currency substitution abstract it is demonstrated that the calvo and rodriguez 1977 results hold up in a utility maximizing model contrary to the claim of liviatan 1981 it is argued that liviatan s conclusions are based on a mistaken assumption having rescued calvo rodriguez from liviatan it is then shown that the calvo rodriguez results are dependent on two special assumptions that there is only one foreign asset traded and its real return is zero the paper also shows that there is an avenue for foreign inflation transmission under perfectly floating exchange rates even when goods prices are perfectly flexible however the direction of response of real variables is in general ambiguous

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

an empirical evaluation of the overconfidence hypothesis abstract recently several behavioral finance models based on the overconfidence hypothesis have been proposed to explain anomalous findings including a short term continuation momentum and a long term reversal in stock returns we characterize the overconfidence hypothesis by the following four testable implications first if investors are overconfident they overreact to private information and underreact to public information second market gains make overconfident investors trade more aggressively in subsequent periods third excessive trading of overconfident investors in securities markets contributes to the observed excessive volatility fourth overconfident investors underestimate risk and trade more in riskier securities to document the presence of overconfidence in financial markets we empirically evaluate these four hypotheses using aggregate data overall we find empirical evidence in support of the four hypotheses

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

an empirical examination of information differences of opinion and trading activity abstract we investigate the relations between trading volumes and our proxies for information flows and divergences in opinions we view s p 500 index futures open interest as a useful proxy for divergences of traders opinions and find that volumes are higher on days when open interest increases than on days with declines volume in individual equities is more closely related to firm specific information flows while equity basket volume is more closely associated with market information this differential impact is greatest for small capitalization stocks where market wide news has no explanatory power

do macro economic news announcements affect the volatility of foreign exchange rates some evidence from australia this paper investigates the role of australian macro economic announcement news on five major australian dollar aud exchange rates specifically the daily changes of the exchange rates are modelled to ascertain the existence and the nature of the news effects in the conditional mean and variance of the changes it is found that a higher than expected current account deficit and unemployment rate announcements depreciated the aud and an unexpectedly higher gdp growth announcement appreciated it current account deficit cpi and unemployment news announcements significantly raised the conditional volatility of the changes of the aud on the days of their announcements except for the bp aud for the cpi news and there is some evidence of retail sales news reducing it in general the evidence is consistent with a view that a release of new information creates uncertainty in the markets due to a lack of consensus on the effects of the particular news announcement and the necessary course of action in add

financial market responses to treasury debt announcements note this paper considers the effect of u s treasury debt announcements on interest rates from 1982 85 the analysis measures the announcement s expected component in two ways the reported market expected announcements from the credit markets column of the wall street journal just prior to the announcements and time series techniques rate response to regular announcements of all maturity classes of treasury debt appear negligible reflecting the treasury s ongoing efforts to keep the market informed of future financing needs however announcements of cash management bills an irregular and residual category of treasury debt generate significant market responses copyright 1989 by ohio state university press

stale information shocks and volatility we propose a new approach to measuring the effect of unobservable private information on volatility using intraday data we estimate the effect of a well identified shock on the volatility of stock returns of european banks as a function of the quality of public information available about the banks we hypothesize that as publicly available information becomes stale volatility effects and its persistence increase as private information of investors becomes more important we find strong support for this idea in the data we further show that stock volatility is higher just before important announcements if information is stale

balance of trade announcements and movements in exchange rates there is a growing literature on the effect of economic news on foreign exchange rates the effects of weekly money supply announcements on exchange rates have been empirically investigated by a number of researchers over a variety of periods 1 2 3 4 7 11 12 13 the response of foreign exchange rates to other types of economic information has also been studied for example dornbusch 5 uses innovations in the current account cyclical factors and interest rates frenkel 10 uses innovations in interest rate differentials edwards 6 uses innovations in money real output and real interest rates most recently hardouvelis 14 studies the market response of three interest rates and seven exchange rates to economic news on fifteen economic aggregates including monetary announcements inflation rate announcements and announcements reflecting the stage of the business cycle this paper studies short run movements in foreign exchange rates to the commerce department s monthly announcements of the u s balance of merchandise trade it extends previous studies of foreign exchange response to economic news in three ways first by studying the response to the trade announcement which occurs two months after the month to which the announcement refers the paper provides a more precise measure of the response to the news content of trade related announcements than earlier studies this for instance is an improvement over dornbusch s 5 definition of current account news as the innovation in the actual oecd organization for economic co operation and development biannual current account estimates second the paper studies not only movements in spot rates to the announcement but calculates the movements in forward premiums to this information by studying the response in forward premiums to the merchandise trade announcements the paper examines whether the information in the announcements implies effects that operate through capital flows and interest rates in addition to responses that operate through the flow of merchandise trade

evaluating electricity sector reforms in argentina lessons for developing countries abstract in argentina prior to the macroeconomic crisis of early 2002 power sector reforms had proven successful in delivering low electricity tariffs and increasing private investments this had been achieved through the unbundling of electricity supply businesses and the introduction of competition paying due attention to the lessons learned by forerunners in power sector reform including neighbouring chile the reforms that had been implemented in argentina were therefore deemed to have been a success however in the wake of the macroeconomic crisis and the devaluation of the peso generators and gas suppliers found themselves in critical financial straights which caused a halt to additional investment the current challenge facing reforms in the argentine power sector is to rebound from the financial ramifications of peso devaluation and to promote private investment given these basic facts this paper traces the history of reforms in the argentine electricity sector assessing the progress that has been achieved and suggesting lessons for developing countries it is often the case in developing countries that the unbundling of vertically integrated state owned industries into privatised enterprises requires efforts to improve infrastructure as a prerequisite for the introduction of competitive practices bearing this in mind this paper lays out measures that would be useful to consider for electricity sector reforms in developing countries from the following three perspectives 1 transition from a state owned power companies to private enterprises 2 development of conditions required to promote infrastructure projects and 3 development of conditions for the establishment of a healthy and fair competitive environment assuming that liberalisation is achieved once the conditions in 1 and 2 are met

news from the u s and japan which moves the yen dollar exchange rate abstract intra daily movements in the yen dollar exchange rate are examined in four non overlapping segments within each business day from january 1980 to september 1985 the results indicate that the dollar tended to appreciate in the new york segment and depreciate in the european segment in three of the four subsamples considered the tokyo segment made virtually no contribution to annual yen dollar rate movements the volatility of the exchange rate also differed across markets finally in examining the relative effects of news from the u s and japan explicitly u s money announcement surprises had the most consistent effects

response of hourly stock prices and trading volume to economic news this paper examines hourly stock returns and trading volume response to announcements about the money supply consumer price index cpi producer price index industrial production and the unemployment rate the empirical results indicate that surprises in announcements about money supply and cpi are significantly associated with stock price changes the announcements of the other three variables do not affect stock prices significantly trading volume is not affected by any of the five economic variable announcements indicating that market participants do not differ substanti ally in the interpretations of the effects of announcements the spee d of adjustment analysis indicates that the effect of information on stock prices is reflected in a short period of one hour or so copyright 1988 by the university of chicago

market sidedness insights into motives for trade initiation we infer motives for trade initiation from market sidedness we define trading as more two sided one sided if the correlation between the number of buyer and seller initiated trades increases decreases and assess changes in sidedness relative to a control sample around events that identify trade initiators consistent with asymmetric information trading is more one sided before merger news consistent with belief heterogeneity trading is more two sided before earnings and macro announcements with greater dispersion in analyst forecasts and after news with larger announcement surprises we examine the codeterminacy of sidedness bid ask spread volatility number of trades and order imbalance

the effects of inflation and money supply announcements on interest rates this paper examines the impact of the money supply and inflation rate announcements on interest rates survey data on expectations of the money supply and consumer and producer price indexes are used to distinguish anticipated and unanticipated components of the announcements this distinction is used to test for the efficiency of the financial market response to the announcements of new information the results indicate that the unanticipated components of the announced changes in the producers price index and in the money supply have an immediate positive effect on short term interest rates the consumer price index announcement has no apparent effect there is no evidence of a delayed announcement effect however there is some indication of a liquidity effect of the money supply change on interest rates this takes place when reserves are changing and several weeks prior to the information announcement the effect of money supply announcements on interest rates has attracted considerable attention in both the academic literature and the financial press in the last few years it has been firmly established that unanticipated increases in the money supply lead to immediate increases in interest rates however there are several competing explanations for this phenomenon in the literature in this paper we present some additional empirical evidence which helps to distinguish between two of these hypotheses the policy anticipations and inflationary expectations hypotheses by examining the effect of money supply and inflation announcements on interest rates the positive effect on interest rates of announcements of unanticipated increases in the money supply was demonstrated by urich and wachtel 9 grossman 3 and roley 5 the announcement effect was interpreted in our earlier paper as a policy anticipations effect and has been interpreted by others e g cornell 1 as an inflationary expectations effect since both effects are in the same direction it is difficult to distinguish between them without additional evidence the policy anticipations effect is simply that an unanticipated increase in the money supply causes financial market participants to expect that the federal reserve will tighten the monetary reins in order to offset the increase in anticipation of future tightening there is a tendency for interest rates to increase the inflationary expectations effect is that an unanticipated increase

portfolio choice and trading volume with loss averse investors this paper presents a model of portfolio choice and stock trading volume with lossaverse investors the demand function for risky assets is discontinuous and non monotonic as wealth rises beyond a threshold investors follow a generalized portfolio insurance strategy this behavior is consistent with the evidence in favor of the disposition effect in addition loss averse investors will not hold stocks unless the equity premium is quite high the elasticity of the aggregate demand curve changes substantially depending on the distribution of wealth across investors in an equilibrium setting the model generates positive correlation between trading volume and stock return volatility but suggests that this relationship should be non linear

from t bills to common stocks investigating the generality of intra week return seasonality the authors investigate the extent to which intra week seasonality still exists and whether its pattern is uniform across three stock indices and treasury bonds with seven different maturities they find that intra week seasonality continues to be significant and that its pattern is not uniform either between the stock indices and the treasury bonds or even among the bonds alone a pattern shared by stocks and bonds is that monday returns become increasingly negative with maturity these findings suggest that neither institutional nor general equilibrium explanations by themselves can explain the pattern of intra week seasonality in securities markets

domestic macroeconomic news and foreign interest rates abstract this study examines the impact of us and uk news on futures prices of us uk german and japanese government bonds we find that certain us information has a significant influence on german japanese and british interest rates while uk information has almost no effect on foreign rates second we examine the foreign term structure to investigate whether the importance of us information arises because it either signals common world wide shocks or induces an anticipated exchange rate stabilization by foreign central banks the evidence is mixed except for the us cpi surprise which appears to provide information about a common world wide shock g15

the impact of news and alternative theories of exchange rate determination over the last decade two of the more important developments in the area of exchange rate determination are the construction of the asset market model and the recognition that news is a key factor affecting exchange rates the asset market model has evolved as an alternative to the traditional flow model of exchange rate determination in contrast to the flow model where the exchange rate is determined by the flow demand for and flow supply of foreign exchange exchange rates adjust to allocate the total stock of foreign exchange in question in the asset market model this model may be presented in one of two forms the monetary approach or the portfolio balance approach the former is summarized in the work of bilson 1978a dornbusch 1976 frenkel 1976 johnson 1976 and mussa 1976 1979 while the latter stems from the efforts of branson 1981 branson halttunen and masson 1977 dooley and isard 1982 kouri 1976 kouri and de macedo 1978 and rodriguez 1980 while the logical consistency of these models has enhanced their popularity empirical support has been limited the importance of unanticipated shocks or news in explaining exchange rate behavior has been suggested by dornbusch 1980 frenkel 1981 isard 1983 and mussa 1979 the basis for this suggestion is the efelcient markets approach that suggests securities prices in a capital market should reflect all available information therefore the predominant cause of exchange rate movements is news that could

the effect of monetary policy actions on exchange rates under interest rate targeting abstract we specify a theoretical model of the exchange rate response to u s monetary policy actions that is capable of explaining a wide range of recent empirical results we show that the response pattern of spot and expected future exchange rates depends on the predictability of federal reserve actions the persistence of shocks to the economy and the reaction of foreign central banks to the us monetary policy shock we also show that the movements of spot and expected future exchange rates in anticipation of a monetary policy change can outweigh the immediate responses at the time of the change

learning from prices and the dispersion in beliefs i study whether investors use an asset s price to update their beliefs about its payos i show that in a dynamic economy the relationship between the dispersion in investor beliefs and returnvolume characteristics can be used to empirically answer this question when investors have rational expectations re and condition on the price i show that belief dispersion is positively related to expected returns return volatility and correlation between volume and absolute returns but negatively related to return autocorrelation when investors do not use the price as in a dierence of opinions do model these relationships are reversed i test these predictions using the crosssection of returns volume and analyst forecast dispersion over dierent horizons the results are consistent with the re model at quarterly and longer horizons but reject both models at the monthly horizon i show that a hybrid model with some do investors and some re investors can match the short horizon evidence the empirical results are consistent with the idea that while some investors do not use the price in the short run they increase their conditioning on the price over time

measurement effects and the variance of returns after stock splits and stock dividends this article examines the relation between two factors affecting stock returns the bid ask spread and price discreteness and the increase in return variance after ex dates of stock splits and stock dividends controlling for these effects the variance of daily returns still increases significantly the variance of weekly returns also increases significantly and the variance of returns for a control sample of nonsplitting firms shows no significant increase variance ratio tests show that bid ask errors are small for these stocks and therefore cannot explain the large increase in variance spreads and price discreteness do not explain increased variance after stock distributions article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

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

how does the informed trading impact bitcoin returns and volatility this study employed an augmented ar gjrgarch model that incorporates an intraday based buy sell order size imbalance measure to explore how informed trading behaviour activity impacted bitcoin retu

crisis sustainability of electricity prices and state interventions in argentina this article examines the sustainability of wholesale power prices following the 2001 economic crisis in argentina we depart from the contractual disputes between the multinational power generating companies and the state of argentina arising from price and investment interventions after the economic crisis then we move on to argue that these sector specific measures were inevitable once some of the key macroeconomic policies such as the currency board system were discarded using an error correction method and estimating a counterfactual price series we demonstrate that in the absence of changes in the price determination method and direct public investment the level and the volatility of power prices would have been much higher with further knock on effects on the rest of the economy copyright 2012 the author 2011 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

the impact of news on financial markets in the united kingdom note a number of papers see e g cornell 1983 and the references contained therein have appeared in the united states recently that examine the impact of money supply announcements on financial asset prices using the framework of the efficient markets hypothesis these studies indicate that for the united states unanticipated increases in m1 push interest rates and the exchange rate upward and place downward pressure on stock exchange prices a feature common to all these papers is that they utilize expectations data which are derived from surveying market participants rather than from a model such as an arima model in an earlier paper smith and goodhart 1985 we set out to compare the reaction of market prices to announcements made both in the united states and in the united kingdom using the dollar sterling exchange rate a price which by definition is common to both countries we found the impact of money announcements m1 in the united states and m3 in the united kingdom to be remarkably similar in magnitude however when we considered the time taken for the effect to be observed the results differed considerably whereas the u s announcement appeared to affect the exchange rate immediately the impact from the u k announcement was not felt fully until the following working day the aim of this paper is to build on these earlier results for the united kingdom this is done by considering four different financial prices along with four different announcements to ascertain the extent to which each market reacts to each announcement because we are interested not only in the magnitude of any announcement effects but also in the time taken for these effects to be fully realized the equations are estimated with the changes in the various financial prices measured over a number of alternative intervals

lessons for international asset allocation on the positive side and despite rumors to the contrary there is little evidence that either stock or bond markets have become more volatile worldwide second correlations between markets remain low on the negative side however correlations do appear to increase when market volatility increases that is just when the diversification potential offered by low correlations is most needed furthernore while currency risk remains a small although signifcant component of total equity risk its contribution to fixedincome risk appears to be increasing

are survey forecasts of macroeconomic variables rational this article examines the rationality of forecasts of 11 macroeconomic variables among the nonstationary series only surveys of housing starts the unemployment rate and the trade balance are rational forecasts among the stationary series survey forecasts for only consumer prices and personal income are consistent with rational expectations lack of rationality in forecasts of durable goods industrial production leading indicators money supply and retail sales suggests that such forecasts do not fully exploit public information indeed survey forecasts for industrial production and retail sales can be improved significantly with past information copyright 1995 by university of chicago press

stock prices and volume the authors undertake a comprehensive investigation of price and volume co movement using daily new york stock exchange data from 1928 to 1987 they adjust the data to take into account well known calendar effects and long run trends to describe the process they use a seminonparametric estimate of the joint density of current price change and volume conditional on past price changes and volume four empirical regularities are found 1 positive correlation between conditional volatility and volume 2 large price movements are followed by high volume 3 conditioning on lagged volume substantially attenuates the leverage effect and 4 after conditioning on lagged volume there is a positive risk return relation article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

short sales constraints and price discovery evidence from the hong kong market short sales practices in the hong kong stock market are unique in that only stocks on a list of designated securities can be sold short by analyzing the price effects following the addition of individual stocks to the list we find that short sales constraints tend to cause stock overvaluation and that the overvaluation effect is more dramatic for individual stocks for which wider dispersion of investor opinions exists these findings are consistent with miller s 1977 intuition and other optimism models we also document higher volatility and less positive skewness of individual stock returns when short sales are allowed the question of how short sales impact capital markets is highly controversial with short sale regulations varying widely across countries and capital markets 1 although short selling has been carried out for years in major financial markets around the world its effects on market efficiency especially on pricing efficiency remain of interest to financial researchers miller 1977 theorizes that in the presence of short sales constraints security prices tend to reflect a more optimistic valuation than the average opinion of potential investors and thus tend to be upward biased this overvaluation argument is based on two conditions 1 a security s short sales are either prohibited or costly and 2 investors have heterogeneous beliefs or information about the security s value the underlying intuition is quite straightforward pessimistic investors are forced to sit out of the market when short sales are not available and thus some negative information is not reflected in prices enabling enthusiastic buyers to bid prices above the level that average investors perceive as fair this argument has significant implications for market efficiency theories since one of the major functions of capital markets is price discovery indeed an efficient market should be a market in which prices always

strategic trading behavior and price distortion in a manipulated market anatomy of a squeeze abstract this paper investigates an attempted delivery squeeze in a bond futures contract traded in london using cash and futures trades of dealers and customers we analyze their strategic trading behavior price distortion and learning in a market manipulation setting we argue that marked differences in settlement failure penalties in the cash and futures markets create conditions that favor squeezes we recommend that regulators require special flagging of forward term repurchase agreements on the key deliverables that span futures contract maturity dates and that exchanges mark to market their contract specifications more frequently or consider a cash settled contract on a basket of bonds

trade balance news and exchange rates is there a policy signal abstract contrary to earlier studies surprisingly large us trade deficits are shown to have a significant effect on exchange rates throughout the 1980s three possible reasons for the time varying effect are considered the evidence presented yields the following inference deficit news is likely to have changed expectations of fed intervention that moved exchange rates deficit news probably has an effect on revisions of future deficit expectations and exchange rates change as a result and deficit news may change expectations regarding us trade policy that is reflected in exchange rates

market created risk we develop a multiperiod rational expectations model of securities market equilibrium in which equilibrium prices may move between periods even though it is common knowledge that no new information has arrived about ultimate security payoffs this happens because investors know they have imperfect information about the endowments of other investors and this knowledge affects their probability beliefs about the prices that will prevail at the intermediate trading date these beliefs are reflected in the equilibrium at the initial trading date when investors focus on the probabilities of intermediate capital gains and losses rather than ultimate payoffs virtually all models of the pricing of securities employ some notion of market equilibrium so for prices to fluctuate something in the equilibrium must change since equilibrium in an informationally efficient market implies that market clearing prices reflect all available information about future securities payoffs it seems to be frequently assumed that observed jumps in prices ought under the efficient market hypothesis to reflect the arrival of new information about future cash payoffs to securities the major theme of this paper is to examine a multiperiod model of securities market equilibrium in which equilibrium prices may change sharply between periods even if it is common knowledge that no new information about ultimate payoffs has arrived and all investors are rational and make full use of all available information in our model the new information that leads to a price change is information about how much of the known total supply of risky securities is held by investors of different preferences for this model to produce intertemporal price fluctuation in equilibrium two phenomena must occur firstly the initially unknown composition of the market must not be revealed by equilibrium prices at the initial trading date secondly despite this the true composition of the market must at least partially determine prices at a later trading date they key to both these phenomena lies in the difference in investor behavior when they anticipate revising their current portfolio holdings in response to future price changes as compared to when they choose portfolios on the basis of receiving the ultimate cash payoffs to the securities they buy in practice few investors anticipating holding financial securities to their eventual liquidation by the issuer short term debt or debt close to maturity would be the major exception few equity securities relative to the total supply

belief dispersion in the stock market we develop a dynamic model of belief dispersion with a continuum of investors differing in beliefs the model is tractable and qualitatively matches many of the empirical regularities in a stock price its mean return volatility and trading volume we find that the stock price is convex in cash flow news and increases in belief dispersion while its mean return decreases when the view on the stock is optimistic and vice versa when pessimistic moreover belief dispersion leads to a higher stock volatility and trading volume we demonstrate that otherwise identical two investor heterogeneous beliefs economies do not necessarily generate our main results

are foreign exchange forecasts rational new evidence from survey data abstract tests of rationality in foreign exchange markets have been inconclusive because of disagreement over the relevant asset pricing model this paper uses a newly available set of data on foreign exchange expectations to directly test the rationality of four foreign currency markets overall the results reject the rational expectations hypothesis

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

measuring investors opinion divergence numerous proxies for divergence of investors opinions have been suggested in the empirical accounting and finance literatures i offer a new proxy constructed from proprietary limit order and market order data this allows me to capture additional information on investors private valuations proxies from the extant literature based on publicly available data do not contain such information given my new measure i ask which of the extant proxies correlates best with it in my regression analysis unexplained volume is the best proxy for opinion divergence conditioning on various firm specific and order specific characteristics generally does not change this conclusion the main exception is the sample of firms without ibes forecast dispersion data for which bid ask spread is the best proxy for opinion divergence factor analysis also suggests that unexplained volume is the preferred proxy for opinion divergence

trader types and volatility of emission allowance prices evidence from eu ets phase i abstract this paper studies the relation between the trading activity of market participants and the volatility of the european emission allowance price during phase i of the european union emission trading system eu ets we focus on the contrasting roles of different trader types we find evidence of a positive and significant trading activity volatility relation which appears to be stronger when accounting for trader type the positive relation can be mainly attributed to energy providers in contrast industrial companies seem to have traded more frequently when volatility levels were lower finally the non liable players represented by financial intermediaries appear to have acted as a flexible counterparty trading more with the energy sector when volatility was higher and more with the industrial firms when volatility was lower we discuss possible explanations for these contrasted positions understanding the trading activity volatility link is relevant for evaluating the efficiency of the eu ets although the relation is generally positive many players remained often inactive and traded mostly when volatility levels were lower policies targeting the engagement of less active players could lead to a smoother incorporation of information into prices and to an increase in market efficiency

measuring the efficiency of grid companies in china a bootstrapping non parametric meta frontier approach abstract the unbundling policy reform of power industry has become a worldwide trend since 1980s there are quite many studies focusing on the efficiency changes of transmission and distribution sectors in european and latin american countries while few reports on china s issues have been found this paper employs a nonparametric frontier estimation combined with meta frontier and bootstrapping method to measure the productive efficiency and changes in the decomposition index for china s 31 grid companies from 2004 to 2013 in addition it further employs tobit regression model to analyze the influences of relevant policies and heterogeneity factors such as natural conditions and economic development the results indicate that the grouping approach extends the application of non parametric data envelopment analysis which may decrease the assumption of homogeneity for the decision making units and provide better efficiency estimates by increasing the credibility of the evaluation results overall productive efficiency increased during the whole study period with technology progress the main contributor to this improvement efficiency trends fluctuated with changes in economic development and power supply situation and the economics and customer density had positive effects on productive efficiency while the influence of clean power proportion is negative

balance of trade announcements and asset prices influence on equity prices exchange rates and interest rates abstract this paper examines the informational impact of traded balance announcements on asset prices including equities currrencies long and short term debt instruments and financial futures this study finds that in the 1980s prior to the 1985 plaza agreement for international economic cooperation information in trade balance announcements seem to have influenced only interest rates however in the 1985 1987 period such announcements also influenced stock prices and currency values these influences intensity further in the 1987 1988 period thus asset prices are sensitive to news in trade balance announcements and this sensitivity seems to have increased significantly in recent years with important implications for asset pricing models and economic policy formulation jel f30

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

russian electricity market reform deregulation or re regulation abstract russia commenced liberalization of electricity prices in 2007 increasing the liberalization rate by 10 25 every six months it was planned to reach full liberalization by 2011 currently the degree of liberalization is uncertain because of intense price regulation and a highly concentrated market in the hands of four large generating companies increased regulation and further consolidation may drive the market towards its pre reform state this paper analyses the competitive landscape of the russian electricity market by assessing the ownership structure of electricity generation price drivers and government involvement in the electricity wholesale market in russia the main research question is why the targeted level of market liberalization has not been fully achieved in the russian electricity market

economic news and intraday volatility in international bond markets kent g becker assistant professor of finance school of business and management temple university joseph e finnerty professor of finance college of commerce and business administration university of illinois at urbana champaign and kenneth j kopecky walter d and mae s fuller professor of economics and associate professor of finance school of business and management temple university

on the roles of international financial markets and their relevance for economic policy a general equilibrium approach to international finance and macroeconomics has been developed recent work associated with this development provides useful tools for interpreting evidence and evaluating alternative policy options important issues to which these advances have been applied include the choice of an exchange rate system the high variability of exchange rates the effects of budget deficits sterilized foreign exchange market intervention and monetary and fiscal policies the causes and consequences of large and variable current account deficits or surpluses and their connections with exchange rates and the development of more open and sophisticated international financial markets copyright 1988 by ohio state university press

an international review of the implications of regulatory and electricity market structures on the emergence of grid scale electricity storage abstract energy storage systems ess have the potential to make a significant contribution to planning and operation practises in power systems while ess can be used to provide multiple benefits in the power sector widespread use has been restricted by high technology costs lack of deployment experience and the barriers and uncertainties caused by the present electricity market and regulatory structures that were designed for conventional electricity systems this paper reviews countries with high renewable targets and with significant current or planned ess deployments to ascertain the common problems affecting the use of ess on the grid and to establish where changes have been made or proposed to the electricity market and regulatory frameworks three major problems were identified as the undetermined asset class for ess and unbundled electricity system limiting stakeholders from determining and realising multiple ess benefits low electricity market liquidity and changing market conditions and a lack of common standards and procedures for evaluating connecting operating and maintaining ess based on the established barriers recommendations to update or create policies regulation and market arrangements to increase the viability and wider use of grid level ess are discussed the three key regulatory and policy recommendations were identified as an alignment of renewable policies to that of ess creating a separate asset class for ess and associated rules for regulated and competitive operations and standardising assessment frameworks connection and operational procedures for the use of ess finally three main electricity market recommendations include updating rules to support simultaneous ess operation across wholesale ancillary services and capacity markets updating market rules to allow compensation for flexible and highly accurate responsive demand and generation technologies such as ess and updating market ancillary services energy requirements

are seasonal anomalies real a ninety year perspective in recent years there has been a proliferation of empirical studies documenting unexpected or anomalous regularities in security rates of return in addition to the widely studied relation between firm size and rate of return 1 these include seasonal regularities related to the time of the day harris 1986 the day of the week see ball and bowers 1986 cross 1973 french 1980 gibbons and hess 1981 jaffe and westerfield 1985 keim and stambaugh 1984 and lakonishok and levi 1982 the time of the month ariel 1987 and the turn of the year see haugen and lakonishok 1988 jones pearce and wilson 1987 lakonishok

differential information and dynamic behavior of stock trading volume this article develops a multiperiod rational expectations model of stock trading in which investors have differential information concerning the underlying value of the stock investors trade competitively in the stock market based on their private information and the information revealed by the market clearing prices as well as other public news we examine how trading volume is related to the information flow in the market and how investors trading reveals their private information article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

trade deficit announcements intervention and the dollar abstract the effect of u s trade deficit announcements on the dollar exchange rate from 1980 1988 is examined the announcement is found to affect the dollar only after mid 1984 central bank intervention does not appear to have had a consistent impact on the dollar on the day of the announcement

money supply announcements and market reactions in an open economy an open economy model of the money supply announcement financial market reaction phenomenon under policy anticipations is formulated whose major divergence from earlier models is the prediction that short term interest rate movements need not be positively correlated with unexpectedly high monetary growth while at variance with the most consistent empirical regularity in the united states this prediction in fact accords with previous empirical findings for both the united kingdom and canada copyright 1990 by ohio state university press

exploiting the heteroskedasticity in measurement error to improve volatility predictions in oil and biofuel feedstock markets abstract we examine whether heteroskedasticity in measurement errors improves the volatility forecasting ability of the heterogenous autoregressive har model in crude oil and biofuel feedstock markets we also examine the incremental explanatory power of jumps and the investor fear gauge ifg over heteroskedasticity in measurement errors in improving the volatility forecasting ability of the har model in each of these markets for the in sample evaluation we find that exploiting the heteroskedasticity of measurement errors in the har model improves the model s goodness of fit measured by adjusted r2 by up to 10 depending on the market ifg has a significant incremental role over heteroskedasticity in measurement errors in improving the fit of the har model in both the crude oil and biofuel feedstock markets while jumps have a significant incremental role in improving the fit of the har model in the crude oil market but not the biofuel feedstock markets for the out of sample forecasts including regime switching improves volatility predictions in the corn and wheat markets across all forecasting horizons while for the soybean market including regime switching improves the performance of multi step volatility forecasts in the out of sample forecasts the best ranked models almost always include heteroskedasticity of measurement error and ifg

futures trading with information asymmetry and otc predominance another look at the volume volatility relations in the european carbon markets this paper constitutes the first exercise of analysing the european carbon market efficiency from a double perspective combining both nature of execution venues screen vs otc trading and their volatility liquidity relations using a bivariate asymmetric gjr garch model we first document that otc exchange traded trading volume shows consistent bi uni directional granger causality to our volatility estimates consistent with greater responsiveness of the otc exchange traded market to changes in market wide idiosyncratic risks second we report significant contemporaneous and lagged positive causality of otc derivatives volume on spot futures volatility confirming that the sequential information arrival hypothesis siah applies third we find that the one way causality from otc to futures volumes is mainly driven by heterogeneous investor beliefs trading volume provides an indication on how private information is dispersed and held at different levels rather than proxying information signal itself after rejecting execution venues substitutability we advocate for systematic clearing and netting of otc positions through a unique clearing house and reporting rules to identify speculation in line with mifid art 59 proposals

electricity market opening impact on investments in electricity sector abstract the paper focuses on the impact of the electricity market regulation on generating technologies including renewable in lithuanian and poland the paper aims to identify how the regulatory and non regulatory factors have influenced investors choices a country case studies approach were applied to analyse and address define the main factors that have influenced investors choice of technology mix in electricity market in transition the major findings of the analysis entail the main driving forces behind the rationale for reform electricity reform characteristics the impact of electricity market reform on electricity prices and electricity market reform and non reform related factors that have influenced investor s choice for a specific generation technology or a technology mix

volume volatility and the dispersion of beliefs i examine a two period noisy rational expectations model of a futures market and show that the dispersion of expectations about a weighted average of future prices measures both the additional volatility and the additional expected volume of trade associated with noisy information the role played by dispersion helps clarify several stylized facts concerning volume and price behavior specifically dispersion can be a factor contributing to the positive correlation between volume and absolute price changes and the positive correlation between consecutive absolute price changes article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

exchange rate and current account dynamics under rational expectations an econometric analysis an econometric portfolio balance model of an open economy incorporating exchange rate price and current account dynamics is derived and estimated the usual stability conditions do not guarantee a unique rational expectations solution and several proposals for resolving this situation are considered using constrained maximum likelihood methods the model is estimated for japan the estimation results indicate that the model is quite successful in explaining the patterns found in the data the model is estimated using several methods of resolving the question of non uniqueness and the results are compared this abstract was borrowed from another version of this item

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

informational efficiency and the open economy a troublesome feature of existing stochastic macroequilibrium models of the open economy is the nature of the informational assumptions usually made most of these models assume that full contemporaneous information on all relevant macrovariables is freely available to economic agents this is the assumption made for example in cox 7 driskill and mccafferty 10 driskill 8 and turnovsky 17 18 among others further when information gaps are introduced the lack of full current information refers to the inability of domestic agents to correctly identify permanent versus transitory components of movements in either the currently observed domestic money supply as in ueda 20 or the observable foreign price level 2 16 5 yet prevailing economic reality is characterized by the availability of differentiated current information to economic agents information or data on variables relevant to auction markets such as asset markets is far more easily and frequently available than information that relates to markets that are contractual in nature such as commodity markets a financial newspaper such as the wall street journal for example provides daily information on half a dozen foreign prime interest rates a multitude of u s

the impact of macroeconomic surprises on spot and forward foreign exchange markets abstract this paper evaluates the effects of surprises in 23 types of macroeconomic announcements on foreign exchange rates and on the forward premium several findings emerge first as in the balance of payment framework announcements that convey a decline in consumer demand increase foreign exchange rates second the ppp hypothesis is rejected in favor of portfolio balance effects in determining exchange rates third the behavior of forward premiums is consistent with covered interest rate parity fourth exchange rates respond to announcements related to consumer demand inflation and interest rates but not to the announcements directly related to the general strength of the economy finally among the news releases considered surprises in the treasury budget trade balance and capacity utilization have the strongest influence in the currency market

deficit announcements and interest rates despite the fact that the most theoretical analyses with the notable exception of the ricardian equivalence approach indicate that increased deficits cause interest rates to rise the empirical evidence is at best inconclusive 1 in this note the relationship between interest rates and deficits is examined with the announcement effect methodology which has not previously been used in this context we find evidence of a positive relationship between unanticipated announcements of the projected federal government deficit and interest rates in an efficient market information about any determinant of interest rates should be quickly incorporated into observed rates thus when information about the size of the deficits is released a relatively quick impact on interest rates can be anticipated more specifically if an increase in the deficit is in fact associated with higher interest rates then an unanticipated announcement of a larger deficit should lead to a response in financial markets which increases interest rates this paper provides evidence on the announcement effects of information on the deficit the advantage of the announcement effect approach is that it precludes the necessity of specifying a structural model for interest rates 2 projections of current and future federal government deficits are made on a regular basis by both the office of managementand budget omb and the congressional budget office cbo and receive wide attention in the financial press these projections provide data that are related to the change in interest rate on government securities from the day before the announcement to the end of the announcement day the macroeconomic hypothesis underlying this investigation is simply that an increase in the current or future deficit leads to an increase in yields on government securities in anticipation of higher levels of debt financing in a rational expectations framework an announcement of higher future deficits will lead to a current increase in interest rates in anticipation of future financing thus the examination of announcement effects enables us to substantiate a relationship between interest rates and deficits without encountering the econometric problems of reduced form modeling section i begins with a description of the data this is followed by a discussion of the methodology in section ii section iii presents the empirical results this is followed by our conclusions in section iv