Pierluigi Balduzzi, Edwin J Elton, T Clifton Green
ABSTRACT This paper examines newly-available intra-day data from
the inter-dealer government bond market to investigate the effects of economic-news
announcements on prices, trading volume, and bid-ask spreads. The use of
intra-day price data together with data on market expectations allows us
to obtain new and different results relative to previous studies. We find
a total of seventeen economic announcements to have a significant impact
on the price of at least on
of the following instruments: a three-month bill, a two ' and ten year
note, and a thirty year bond. Ten of them significantly affect all note
and bond prices. For announcements that have a significant impact on prices,
the impact occurs within one minute after the announcement. Interestingly,
only three announcements affect the bill price. This suggests that at least
two factors of uncertainty are needed to model the yield curve. For the
ten-year note we find a strong association between announcements and trading
volume. Economic announcements have less effect on trading volume for the
three-month bill, although changes in monetary policy lead to an average
trading volume up to nine times higher than at non-announcement times.
Bid-ask spreads widen immediately after most economic announcements, but
then return to normal levels within 5 to 15 minutes. For almost all announcements,
volatility is significantly higher after the release, especially for the
announcements that significantly affect prices.
Subject: Investment Fixed Income (Empirical)
Balduzzi: balduzzp@bc.edu
Elton: (212) 998-0361 eelton@stern.nyu.edu
Green: (212) 998-0319 tgreen@stern.nyu.edu
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