the macroeconomic news cycle and uncertainty resolution we examine the behavior of return volatility and trading at 5 minute intervals in the treasury bond futures market in the context of the monthly macroeconomic news cycle we advance and confirm the hypothesis that volatility and trading activity are higher in the first half of the month the data indicate that these patterns arise from at least two sources 1 a higher level of uncertainty regarding the value of news in announcements in the first half of the month and 2 improvement in efficiency of macroeconomic forecasts from the first to the second half of the month

efficient mechanisms for bilateral trading we consider bargaining problems between one buyer and one seller for a single object the seller s valuation and the buyer s valuation for the object are assumed to be independent random variables and each individual s valuation is unknown to the other we characterize the set of allocation mechanisms that are bayesian incentive compatible and individually rational and show the general impossibility of ex post efficient mechanisms without outside subsidies for a wide class of problems we show how to compute mechanisms that maximize expected total gains from trade and mechanisms that can maximize a broker s expected profit journal of economic literature classification number 026

optimal auction with resale this paper investigates the design of seller optimal auctions when winning bidders can attempt to resell the good in that case the optimal allocation characterized by myerson 1981 cannot be achieved without resale i find a sufficient and necessary condition for sincere bidding given the possibility of resale in two bidder cases i prove that the myerson allocation can be achieved under standard conditions supplemented with two assumptions with three or more bidders achieving the myerson allocation is more difficult i prove that it can be implemented in special cases in those cases the myerson allocation is generated through a sequence of resale auctions each optimally chosen by a reseller

price reversals bid ask spreads and market efficiency we examine the behavior of common stock prices after a large change in price occurs during a single trading day and find evidence that the stock market appears to have overreacted especially in the case of price declines however the magnitude of the overreaction is small compared to the bid ask spreads observed for the individual stocks in the sample we interpret this finding as being consistent with a market that is efficient after transactions costs are considered

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

asymmetric effects of federal funds target rate changes on s p100 stock returns volatilities and correlations we study the effects of fomc announcements of federal funds target rate decisions on individual stock returns volatilities and correlations at the intraday level for all three characteristics we find that the stock market responds differently to positive and negative target rate surprises first the average response to positive surprises that is bad news for stocks is larger second in case of bad news the mere occurrence of a surprise matters most whereas for good news its magnitude is more important these new insights are possible due to the use of high frequency intraday data

a simple model of voice we think of voice as a means of information aggregation within groups operating in a variety of settings we explore how the characteristics of groups and their leaders influence voice in relatively homogeneous groups members farthest away from the leader have the best incentives to provide information and their voice tends to moderate policy decisions in large heterogeneous groups where leaders cannot identify individual members the possibilities for informational exchange are severely limited and any communication that exists pushes policies farther to the extreme

first price auctions with resale abstract we present a simple model of first price auction with two bidders whose valuations are not identically distributed and where resale is possible between the bidders and given an explicit expression for the equilibrium strategies

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

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

the effects of inflation news on high frequency stock returns previous research using daily returns finds conflicting evidence about the relationship between unanticipated inflation news and stock returns we explore the relationship by looking at the response in minutes and trades of size based stock portfolios to unexpected changes in the regularly scheduled producer price index and consumer price index announcements in particular we answer the following three questions 1 do stocks respond to inflation news 2 what is the speed and path of that response 3 is the response stable or does it vary with the economy the direction of the news or time

optimal mechanisms for an auction mediator we consider a multi period auction with a seller who has a single object for sale a large population of potential buyers and a mediator of the trade the seller and every buyer have independent private values of the object the mediator designs an auction mechanism which maximizes her revenue subject to certain constraints for the traders in each period the seller auctions the object to a set of buyers drawn at random from the population the seller can re auction the object infinitely many times if it is not sold in previous interactions we characterize the class of mediator optimal auction mechanisms one of such mechanisms is a vickrey auction with a reserve price where the seller pays to the mediator a fixed percentage from the closing price

platform competition in two sided markets many if not most markets with network externalities are two sided to succeed platforms in industries such as software portals and media payment systems and the internet must get both sides of the market on board accordingly platforms devote much attention to their business model that is to how they court each side while making money overall this paper builds a model of platform competition with two sided markets it unveils the determinants of price allocation and end user surplus for different governance structures profit maximizing platforms and not for profit joint undertakings and compares the outcomes with those under an integrated monopolist and a ramsey planner jel l5 l82 l86 l96

the influence of fundamentals on exchange rates findings from analyses of news effects as we survey the literature of macroeconomic news in the foreign exchange market we can by now look back on nearly 30 years of research the first studies which analysed news effects on exchange rates were established in the early 1990s see for example dornbusch almost at the same time meese and rogoff published their influential paper revealing the forecasting inferiority in exchange rates of structural models against the random walk this finding has shocked the pillars of exchange rate economics and thus cast general suspicion on research focusing on fundamentals in this field the eventual rising popularity of event studies can partly be attributed to the re establishment of the raison d etre of exchange rate economics this work focuses on systematically surveying this literature with particular respect to its primary goal i e shedding light on the analytical value of fundamental research thus its major findings are first fundamental news does matter whereas non fundamental news matters to a lesser degree second news influences exchange rates via two separated channels i e incorporating common information into prices directly or indirectly based upon order flow third with a few exceptions the impact of fundamental news on exchange rates is fairly stable over time

the intra day impact of communication on euro dollar volatility and jumps abstract in this paper we examine the intra day effects of verbal statements and comments on the fx market uncertainty using two measures continuous volatility and discontinuous jumps focusing on the euro dollar exchange rate we provide empirical evidence of how these two sources of uncertainty matter in measuring the short term reaction of exchange rates to communication events talks significantly trigger large jumps or extreme events for approximately an hour after the news release continuous volatility starts reacting prior to the news intensifies around the release time and stays at high levels for several hours our results suggest that monetary authorities generally tend to communicate with markets on days when uncertainty is relatively severe and higher than normal disentangling the us and euro area statements we also find that abnormal levels of volatility are mostly driven by the communication of the euro area officials rather than us authorities

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

sequentially optimal auctions abstract in auctions where a seller can post a reserve price but if the object fails to sell cannot commit never to attempt to resell it revenue equivalence between repeated first price and second price auctions without commitment results when the time between auctions goes to zero seller expected revenues converge to those of a static auction with no reserve price with many bidders the seller equilibrium reserve price approaches the reserve price in an optimal static auction an auction in which the simple equilibrium reserve price policy of the seller mirrors a policy commonly used by many auctioneers is computed journal of economic literature classification numbers c78 d44 d82

price reversals bid ask errors or market overreaction abstract we show that bid ask errors in transaction prices are the predominant source of apparent price reversals in the short run for nasdaq firms once we extract measurement errors in prices caused by the bid ask spread we find little evidence of market overreaction on the contrary we find that security returns are positively and not negatively autocorrelated we also show that bid ask errors lead to substantial spurious volatility in transaction returns about half of measured daily return variances can be induced by the bid ask effect

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

the inefficiency of reuters foreign exchange quotes abstract reuters foreign exchange fxfx page is the world wide predominant information source to foreign exchange traders in this study we compare the indicative spot exchange rate quotes from reuters with their matching futures exchange rates from the chicago mercantile exchange we find that the indicative quotes on reuters fxfx page are inefficient and could be improved by incorporating information from the futures market this casts doubt on the way banks determine these quotes as well as on the informational content of these quotes as an indicator of the current exchange rate

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

what defines news in foreign exchange markets abstract this paper examines whether the traditional sets of macro surprises that most of the literature considers are the only sorts of news that can explain exchange rate movements we examine the intra daily influence of a broad set of news reports including variables which are not typically considered fundamentals in the context of standard models of exchange rate determination and ask whether they too help predict exchange rate behavior we also examine whether news not only impacts exchange rates directly but also influences exchange rates via order flow signed trade volume our results indicate that along with the standard fundamentals both non fundamental news and order flow matter suggesting that future models of exchange rate determination ought to include all three types of explanatory variables

partial pooling at the reserve price in auctions with resale opportunities abstract two features common to many auctions are the use of reserve prices and the existence of secondary markets for the goods being sold even in simple symmetric settings the combination of these features can preclude existence of an equilibrium in symmetric separating bidding strategies with a reserve price sufficiently far below the maximum endogenous valuation a symmetric equilibrium still exists but with some types pooling at the reserve the optimal reserve price depends not only on the joint distribution of bidders information before and after the auction but also on how surplus is divided in the secondary market journal of economic literature classification numbers d44 c7 l1 d82

intradaily price volume adjustments of nyse stocks to unexpected earnings the speed and path of adjustment in stocks to the degree of earnings surprise in their quarterly announcements are studied using price volume transactions data a differential price adjustment process was observed with stocks having large positive earnings surprises experiencing a faster adjustment compared with those stocks with negative earnings surprises volume transaction frequency and size were found to be directly related to the absolute degree of surprise but very favorable earnings surprise stocks experienced initially a large number of smaller trades while stocks with large unfavorable earnings surprises had relatively fewer transactions but higher volume per trade the stock market s microstructure has received increasing attention from researchers especially from an empirical perspective as transaction data on prices and volume have become more readily available 1 an important subset of this research has been the study of stock price adjustments to significant news events specifically publicly announced information with economic content should be quickly reflected in prices in an unbiased manner this paper contains a study of the intradaily adjustment in stocks to the informational content of earnings reports using price changes trading volume and transaction frequency and size we examine the transaction to transaction and time series stock behavior associated with different degrees of earnings surprise embedded in earnings announcements the degree of surprise is measured by a comparison of actual with forecasted earnings for 325 new york stock exchange nyse firms these firms are subdivided into five earnings surprise categories in order to determine whether the speed and path of their price volume adjustment processes are different one question of interest is whether the adjustment process for favorable versus unfavorable earnings surprises is similar or different another is whether any adjustment is distinguished by a few large trades or a large number of smaller

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

opinions as incentives we study costs and benefits of differences of opinion between an adviser and a decision maker even when they share the same underlying preferences over decisions a difference of opinion about payoff relevant information leads to strategic information acquisition and transmission a decision maker faces a fundamental trade off a greater difference of opinion increases an adviser s incentives to acquire information but exacerbates the strategic disclosure of any information that is acquired nevertheless when choosing from a rich pool of opinion types it is optimal for a decision maker to select an adviser with some difference of opinion centralization of authority is essential to harness these incentive gains since delegation to the adviser can discourage effort

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

intraday futures market behaviour around major scheduled macroeconomic announcements australian evidence abstract this paper examines intraday futures market behaviour around major scheduled macroeconomic information announcements on the sydney futures exchange sfe prior literature analysing intraday price behaviour around announcements is extended to trading volume and quoted bid ask spreads the analysis of price volatility trading volume and quoted bid ask spreads indicates that the majority of adjustment to new information occurs rapidly within 240 seconds of the scheduled time for major announcements with some evidence of abnormal activity prior to announcements analysis of quoted bid ask spreads suggests that they significantly widen in the 20 seconds prior to announcements and remain significantly wider for 30 seconds following announcements the increase in quoted spreads is related to both expected and unexpected volatility implying that market participants increase quoted spreads around information announcements as a consequence of adverse selection costs

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

cheap talk with an exit option the case of discrete action space abstract we consider a cheap talk model with the sender s exit option we show that in the case of discrete action space it can be the case that there exists an informative equilibrium if and only if the sender s bias is sufficiently small or sufficiently large the latter case is sharply contrasting with the existing results of cheap talk

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

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

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

execution costs and their intraday variation in futures markets we consider trading costs in the transparent competitive open outcry markets of the chicago mercantile exchange cme in which market makers have no affirmative obligation to trade we document that while cme spreads are similar in magnitude to those in other markets realized spreads are often negative a plausible explanation is that cme market makers are able to employ more complex trading strategies than their equity market counterparts because they are not bound by affirmative obligation the evidence suggests that market transparency and market maker obligations are important determinants of intraday variation in trading costs copyright 2001 by university of chicago press

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

secret reserve prices in a bidding model with a re sale option this paper presents an auction model in which the seller may choose not to sell in spite of receiving a bid above the announced reserve price such behavior is seen frequently in auctions yet would be suboptimal within most existing models here the seller uses resale to signal information about the object s value that could not be easily communicated via a reserve price announcement the model predicts that bids for reauctioned objects increase relative to initial bids and that on average prices of both reauctioned items and those sold at initial auction rise as delay in reauctioning increases copyright 1997 by american economic association

intraday price reversals in the us stock index futures market a 15 year study this paper gives a long term assessment of intraday price reversals in the us stock index futures market following large price changes at the market open we find highly significant intraday price reversals over a 15 year period november 1987 september 2002 as well as significant intraday reversals in our yearly and day of the week investigations moreover the strength of the intraday overreaction phenomenon seems more pronounced following large positive price changes at the market open that being said the question of whether a trader can consistently profit from this information remains open as the significance of intraday price reversals is sharply reduced when gross trading results are adjusted by a bid ask proxy for transactions costs

the determinants of future u s monetary policy high frequency evidence this paper examines the determinants of future u s monetary policy by studying the relationship between a predictor of the future direction of monetary policy and a pertinent information set specifically we investigate the impact of the surprise component of an array of macro economic announcements upon federal funds futures rates this investigation is conducted using high frequency intraday data in order to examine the exact timing of rate reactions to announcements in doing this we find that non farm payrolls and civilian unemployment announcements play a dominant role in determining future monetary policy moreover we document evidence that shows that the release of such information is rapidly incorporated into rates particularly when considering federal funds futures contracts traded via an electronic trading platform as opposed to an open auction trading platform

wall street s bailout bet market reactions to house price releases in the presence of bailout expectations abstract the rise and subsequent collapse of us house prices was one of the factors underlying the recent financial crisis one could expect that the crisis brought increased attention to the housing market and thus led to stronger market reactions to house price news we find that reactions indeed change but with a peculiar twist from september 2008 on good news from the housing market are associated with falling us stock prices and vice versa the likely explanation for which we provide cross sectional evidence is that falling house prices increased the market s trust in a government bailout thereby increasing market valuations of firms that were expected to benefit from government rescue measures

market set up in advance of federal reserve policy rate decisions textabstractthis paper considers the uncertainty associated with upcoming federal open market committee fomc announcements and the extent to which participants in the fed funds futures market prepare for such announcements before they actually occur we demonstrate that markets set up well in advance of known announcement days going back as far as six months prior to an fomc meeting as a result there is often less variation in fed funds futures prices in the period immediately preceding an fomc announcement despite greater volume of activity as the market has already incorpo rated anticipated signals we find that macro announcements and central bank officials speeches and congressional testimony are of comparable importance in addition while macro announcements have stronger effects when they are released during the fed s blackout period congressional testimony is more important when it coincides with days when important macro variables are released

the exchange rate effects of macro news after the global financial crisis abstract we explore whether the exchange rate effects of macro news are time and state dependent by analyzing and comparing the relative influence of us and japanese macro news on the jpy usd rate before during and after the global financial crisis a comprehensive set totaling 40 time stamped us and japanese news variables and preceding survey expectations along with 5 min indicative jpy usd quotes spanning the 1 january 1999 to 31 august 2016 period facilitate our analysis our results suggest that while us macro news are now more important than before the crisis the influence of japanese macro news has waned to the point of near irrelevance these findings are of particular importance to exchange rate modeling of the new era

auctions with resale markets an application to u s forest service timber sales when bidders anticipate an opportunity for resale trade the value of winning an auction is determined in part by the option values of buying and selling in the secondary market one implication is that a bidder s willingness to pay at an auction increases with the expected level of competition between resale buyers empirical evidence from auctions of timber contracts supports this prediction and rejects standard models that ignore resale the estimated effect is smaller after policy changes expected to diminish the prevalence of resale additional evidence supports the predicted presence of a common value element introduced by the resale opportunity

auction and the informed seller problem a seller possessing private information about the quality of a good attempts to sell it through a second price auction with announced reserve price the choice of a reserve price transmits information to the buyers we characterize the equilibria with monotone beliefs of the resulting signalling game and show that they lead to a reduced probability of selling the good compared to the symmetric information situation we compare the unique separating equilibrium of this signalling game to the equilibrium of a screening game in which an uninformed monopoly broker chooses the trading mechanism we show that the ex ante expected probability of trade may be larger with a monopoly broker as well as the ex ante total expected surplus

implications of the discreteness of observed stock prices stock prices on the organized exchanges are restricted to be divisible by 1 8 therefore the true price usually differs from the observed price this paper examines the biases resulting from the discreteness of observed stock prices it is shown that the natural estimators of the variance and all of the higher order moments of the rate of returns are biased an approximate set of correction factors is derived and a procedure is outlined to show how the correction can be made the natural estimators of the beta and of the variance of the market portfolio on the other hand are nearly unbiased the behavior of stock prices has been an issue of interest to the financial economist for many years this interest resulted in a growing number of empirical studies which attempt to estimate this behavior e g blattberg and gonedes 2 fama 6 fama and roll 7 8 barnea and downes 1 to date stock price behavior is estimated under the assumption that the observed trading price is the true equilibrium price however observed stock prices and stock price changes on the organized exchanges are restricted to multiples of 1 8 of a dollar 1 therefore if the true distribution of stock prices is continuous an observed trading price can be different from the true price this paper examines the biases in estimating the moments of stock price changes caused by the discreteness of observed stock prices the major focus of the paper is in noting this problem providing a model which explains the source of these biases and quantifying their size section i demonstrates that due to the discrete nature of observed stock prices the natural estimators for the variance and for the higher order moments of the rate of returns are biased upward this bias is larger for stocks with lower prices and smaller standard deviation for instance assuming that the standard deviation a is 0 001 the stock price is one dollar the true probability distribution of stock prices is lognormal and the observed prices are as close as possible to the true prices then the natural estimator of r has expectation 0 01400 hence it is biased upward by 1300 significant biases have important implications in option pricing we derive an approximate set of correction factors which can be applied to the

the reaction of asset markets to swiss national bank communication abstract in this paper we analyze high frequency movements in swiss asset markets in reaction to real time communication by the swiss national bank our analysis of central bank communication encompasses monetary policy announcements speeches and interviews we examine the reactions of the currency market the bond market and the stock exchange the evidence suggests that speeches and interviews along with monetary policy announcements engender a significant price reaction this paper sheds light on the relevance of communications other than monetary policy announcements

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

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

bidding to lose auctions with resale a losing bidder can still purchase the prize from the winner after the auction we show why a strong bidder may prefer to drop out of the auction before the price has reached her valuation and acquire the prize in the aftermarket a strong bidder may be in a better bargaining position in the aftermarket if her rival won at a relatively low price so it can be common knowledge that in equilibrium a weak bidder will win the auction and even without uncertainty about relative valuations resale will take place the possibility of reselling to a strong bidder attracts weak bidders to participate in the auction and raises the seller s revenue

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

speculation in standard auctions with resale in standard auctions resale creates a role for a speculator a bidder who is commonly known to have no use value for the good on sale we study this issue in environments with symmetric independent private value bidders for second price and english auctions the efficient value bidding equilibrium coexists with a continuum of inefficient equilibria in which the speculator wins the auction and makes positive profits first price and dutch auctions have an essentially unique equilibrium and whether or not the speculator wins the auction and distorts the final allocation depends on the number of bidders the value distribution and the discount factor speculators do not make profits in first price or dutch auctions

estimating the volatility of discrete stock prices this paper introduces an estimator of stock price volatility that eliminates at least asymptotically the biases that are caused by the discreteness of observed stock prices assuming that the observed stock prices are continuously monitored an estimator is constructed using the notion of how quickly the price changes rather than how much the price changes it is shown that this estimator has desirable asymptotic properties including consistency and asymptotic normality also through a simulation study the authors show that it outperforms natural estimators for the low and middle priced stocks furthermore the simulation study demonstrates that the proposed estimator is robust to certain misspecifications in measuring the time between price changes

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

price drift before u s macroeconomic news private information about public announcements we examine the price behavior of stock index and treasury futures around the release of u s macroeconomic announcements seven out of 18 market moving announcements show evidence of informed trading before the ocial release time for these announcements prices begin to drift in the correct direction about 30 minutes before the announcement time the pre announcement drift accounts on average for about half of the total price adjustment we consider two explanations for this preannouncement drift information leakage and superior forecasting release procedures that may aect information leakage vary greatly across organizations we nd some evidence of predictability of announcement surprises based on reprocessing of public information and on private data collection which might explain the drift