Minute-by-minute dynamics of the Australian bond futures market in response to new macroeconomic information

Abstract This paper investigates the response efficiency of the 10 year Australian Commonwealth bond futures market to the news content of the Australian scheduled information release from January 1993 to July 1997. Using Money Market Services market expectations data to generate the news component of announcements, we find that the futures price falls in response to higher than expected current account deficit, inflation, GDP and retail sales announcements, whereas an unexpected rise in unemployment raised it. In addition to the price response, there is strong evidence of elevated volatility of the price and of trading volumes following all five news announcements. More importantly, most of the market adjustments (of price and volatility) to new information were completed during the first minute following each news announcement suggesting market efficiency of the Australian futures market. The trading volumes, on the other hand, continue to respond to news for 1 h following the news release. This suggests that, after the new equilibrium price has been quickly established and its volatility dispersed, volume trading persists for the purposes of portfolio re-balancing by liquidity traders and for establishing a complete consensus amongst traders.

[1]  R. Aggarwal,et al.  Asymmetric impact of trade balance news on asset prices , 1998 .

[2]  L. Ederington,et al.  How Markets Process Information: News Releases and Volatility , 1993 .

[3]  R. Aggarwal,et al.  Balance of trade announcements and asset prices: influence on equity prices, exchange rates, and interest rates , 1992 .

[4]  M. Fleming,et al.  Price Formation and Liquidity in the U.S. Treasury Market: Evidence from Intraday Patterns Around Announcements , 1997 .

[5]  Jeffrey Sheen,et al.  International Linkages and Macroeconomic News Effects on Interest Rate Volatility - Australia and the US' , 1998 .

[6]  Joseph E. Finnerty,et al.  Macroeconomic news and the efficiency of international bond futures markets , 1996 .

[7]  Suk-Joong Kim.  Inflation news in Australia: its effects on exchange rates and interest rates , 1996 .

[8]  Catherine Bonser-Neal,et al.  Central bank intervention and the volatility of foreign exchange rates: evidence from the options market , 1996 .

[9]  Jae Ha Lee,et al.  The Short-Run Dynamics of the Price Adjustment to New Information , 1995, Journal of Financial and Quantitative Analysis.

[10]  Michael Melvin,et al.  Trade balance news and exchange rates: Is there a policy signal? , 1991 .

[11]  Juann H. Hung.  Intervention strategies and exchange rate volatility: a noise trading perspective , 1997 .

[12]  C. Engel,et al.  Why interest rates react to money announcements: An explanation from the foreign exchange market , 1984 .

[13]  M. Fleming,et al.  What Moves the Bond Market? , 1997 .

[14]  C. Goodhart,et al.  The Impact of News on Financial Markets in the United Kingdom: A Note , 1985 .

[15]  Jiang Wang,et al.  Differential Information and Dynamic Behavior of Stock Trading Volume , 1995 .

[16]  D. Thornton.  The effect of unanticipated money on the money and foreign exchange markets , 1986 .

[17]  G. Hardouvelis,et al.  Economic News, Exchange Rates and Interest Rates , 1988 .

[18]  J. Madura,et al.  Trade deficit surprises and the ex ante volatility of foreign exchange rates , 1992 .

[19]  Suk-Joong Kim,et al.  Do Australian and the US macroeconomic news announcements affect the USD/AUD exchange rate? Some evidence from E-GARCH estimations , 1998 .

[20]  Suk-Joong Kim,et al.  Exchange Rates, Interest Rates and Current Account News: Some Evidence from Australia , 1995 .

[21]  Ranjit Singh.  RESPONSE OF FINANCIAL MARKETS TO ANNOUNCEMENTS OF THE AUSTRALIAN CURRENT ACCOUNT BALANCE , 1995 .

[22]  M. J. Klass,et al.  On the Estimation of Security Price Volatilities from Historical Data , 1980 .

[23]  Craig S. Hakkio,et al.  THE REACTION OF EXCHANGE RATES TO ECONOMIC NEWS , 1985 .