Impact of Macroeconomic Announcements on Interest Rate Futures: High‐frequency Evidence From Australia

Abstract

I investigate the behavior of Australian interest rate futures around the release of major scheduled macroeconomic announcements. The adjustment to new information occurs quickly with the majority of the reaction complete within 30 seconds. The period immediately before the announcement exhibits high volatility, low levels of volume, and wide bid-ask spreads. In the 30 seconds following the scheduled announcement there is a sharp increase in price volatility, significant positive correlation in returns, high levels of trading activity, and large adjusted returns. The reaction is stronger in shorter maturity contracts, and in the period surrounding the 2007-2008 financial crisis.JEL Classification: G10, G14, G15 I am very grateful to my referee, Christopher J. Neely, for his insightful feedback during the review process. I gratefully appreciate the comments from the associate editor, Louis H. Ederington, which improved the scope and conciseness of the article. I also thank seminar participants at the University of New South Wales and the 2012 Financial Markets and Corporate Governance conference for useful comments and suggestions. All remaining errors are mine.

Central Bank Actions and Words: The Intraday Effects of FOMC Policy Communications on Individual Equity Volatility and Returns

“…Our results echo Ederington and Lee (1993), who find evidence that macroeconomic news releases impact U.S. financial markets, while notably contrasting Smales (2013), who claims full information is absorbed within 20 seconds of the news release. The high absorption speed found in Smales (2013) appears implausible to us, as it presumes that all relevant agents receive, digest, and act on the information in the news release at exactly the same time regardless of the computer platform they employ, or how far they are located from the news release point. It also assumes that the macroeconomic news release is available at the publicly-stated time to the literal second (so, a 2:00 p.m. news release happens at precisely 2:00:00.0000 p.m. and not some other time).…”

“…Studies incorporating daily frequency data include, inter alia, Bernanke and Kuttner (2005) for Federal Funds futures and Hausman and Wongswan (2011) for foreign equity indexes and exchange rates. With the availability of intraday data, more recent studies analyzed the real-time response of scheduled Federal Reserve announcements include Fleming and Piazzesi (2005) and Jiang, Lo and Valente (2014) for Treasury notes, Ederington and Lee (1993) for interest rate and foreign exchange futures, Elder, Miao and Ramchander (2012) for metal futures, Lunde and Zebedee (2009) for the Standard & Poor's (S&P) 500 index, Rosa (2011) for exchange rates, and Smales (2013) for Australian interest rates. On the important question of whether all market participants receive the macroeconomic announcements at precisely the same time, Bernile, Hu and Tang (2014) find evidence of informed trading in the E-mini S&P 500 futures market from 1997 to 2013 during the lockup periods prior to the FOMC's monetary policy announcements.…”

The Determinants of RBA Target Rate Decisions: A Choice Modelling Approach

“…It is also reasonable to extend the set of considered variables further by including macroeconomic factors that have a material impact on the price of financial assets. Smales () observes that five variables have a significant impact on short‐term Australian interest rate futures; the policy expectations hypothesis suggests that this is a result of market participants reassessing prospective changes in the RBA target rate. As a result, the Producer Price Index ( PPI t ) and Retail Sales ( Retail_Sales t ) are also added to the set of variables (the other three significant variables – GDP, CPI and the unemployment rate – are already present in the consideration set).…”

Examining the impact of macroeconomic announcements on gold futures in a VAR-GARCH framework

“…Importantly, market efficiency dictates that the expected portion of an announcement should have no effect on asset prices; instead, it is the surprise (news) component that the market responds to (Anderson et al, 2003;Kim et al, 2004;Smales, 2013). Further, Fleming and Remolona (1999) suggest that daily data are not sufficient to cleanly capture the market reaction.…”