Abstract:
Event studies measuring the impact of macroenomic announcements rely on surveys as a measure of market expectations. However, these survey measures are noisy indicators of actual market expec-
tations as they are collected with a time lag and not among actual market participants. Based upon a Hellwig (1980) type market microstructure model, a market-based survey measure is proposed that
takes into account orderfkow/price movements prior to release in order to capture changes in market expectations. The model is tested on US and German 10-year bond futures contract for 8 US and German
macroeconomic announcements and confirm the presence of expectation adjustments for the most important releases. Furthermore the market-based survey measure captures the directionality of the surprise somewhat better than the standard Bloomberg survey measure.
Latest revision: January 2010.
Abstract:
This paper analyzes the impact from macroeconomic news announcements on risk premia on
bond yields using high-frequency data. A new method is proposed for the identification
of the fundamental part using risk adjusted money market futures. Consequently, we are
able to identify the behaviour of both the fundamental part and the risk premia. Our
results suggest that changes in risk premia react asymmetric to news while expectations
of future short rates react symmetrically.
Latest revision: February 2010.
Abstract:
Hot-potato trading is defined by Lyons (1997), as "the repeated passing of inventory imbalances between dealers". This study is an
empirical examination of hot potato trading in the German and Danish bond market. A detailed description of the phenonomen is provided
and two aspects of hot potato trading is examined in depth. The first analysis concludes, that hot potato trading primarily takes places
in liquidity abundant markets and is therefore a clear indication of a well-functioning market as this allows for risk sharing across market
participants. Secondly, the estimated price impact of hot potato trades is lower compared to ordinary trades, suggesting that market makers
distuinguish between the informational content of the trades.
Latest revision: February 2010.