The Story So Far ...

This blog shares research on the impact of economic news, that is, the difference between economic announcements and what was anticipated, on financial markets.

The three contributions of this research are:

1. The market expectation is derived from economic derivative prices that allow a full distribution for the market expectation to be derived. Economic derivatives data better predict financial market movements and also allow for testing whether there is information in the higher moments of the distribution.
2. High frequency financial data allows me to test for the optimal window and discover how long it takes financial markets to digest and react to news.
3. By using a U.S. and a European economic announcement and a wide range of financial markets, this research compares announcements to show which are important for which markets.

Because of the focus of my readers I have recently been concentrating on foreign exchange rates and the big U.S. announcements.

• I find that high frequency financial data leads to a much bigger and more significant news announcement effect over previous studies that used end-of day data.
• Further, financial markets react very quickly to news. Unlike other studies that have assumed a 25-30 minute window, I have demonstrated that the announcement window is often just a matter of a minute or two.
• Using the richness of the economic derivatives-based expectations data I have determined when higher moments of the expectations distribution are useful in determining the announcement effect (volatility of expectations, a skew in the market view etc.).
• I also have shown in which markets, and for which announcements, good news and bad news have asymmetric effects; and, which markets are most responsive to which announcements.
• Finally, I have highlighted some of the interesting results that traders or risk managers might want to delve into in more detail.

I am looking for feedback and ways to make the research useful. Should you have any suggestions for research direction or feedback, please leave a comment.