News Moves Markets

It is not news that news moves financial markets.

Financial news is full of stories about how markets were surprised or anticipated an economic statistic and how the markets moved in response to this news.

Many people trade in financial markets around economic announcements. These traders like the volatility that surrounds the announcement, so people bet on good news, others on bad, and there is much speculation on what the market sentiment is before a new economic statistic such as the U.S. employment situation that is embodied in the monthly non-farm payrolls release.

Of course just as some want to profit from these market gyrations others see the market moves following news as a risk and would like to avoid them.

In the past surveys have been done of market forecasters before economic announcements. These have been used to gauge market sentiment and the extent to which the actual number differs from the survey is taken as the news component that drives the market in the minutes following the announcement.

New News

Recently two developments have occurred that have allowed us to quantify how much, when, and in what direction financial markets move in response to news.

Firstly, economic derivatives, auctions of puts and calls on economic releases allow us to get a much better read on market sentiment than comes from surveys. Participants in the economic derivatives market are putting their money where their mouth is.

Secondly real-time financial markets data has allowed the effect of the announcement to be isolated and separated from other influences.

The economic-news Blog

This blog will publish relevant research on how news moves financial markets.

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