Ederington, Louis H. and Jae Ha Lee. 1993. "How Markets Process Information. News Releases and Volatility." In: The Journal of Finance Vol. 48, No. 4: 1161-1191.  Home/Search   Document Not in Database   Summary   Related Articles   Check

....making use of relevant information is analysed by examining responses to the expected component of any macroeconomic announcement. However, with regard to the speed of arbitrage processes, inter daily changes are inadequate for revealing microstructural aspects of the price adjustment mechanism. Ederington and Lee (1993 and 1995) made an important contribution in this regard by utilising tick data from eurodollar futures prices and showing that most of the price adjustments to the U.S. macroeconomic announcement news are concluded within the first minute of an information release. Fleming and Remolona (1997a) ....

Ederington, L. H. and J. H. Lee, 1993, How markets process information: news releases and volatility, Journal of Finance 48, 1161-1191.

.... compute the news frequency from the money market headlines of the Reuters screen AAMM.We consider di erent subsets 2 Earlier analysis of the impact of macroeconomic announcements during the rst hour of trading (usually at 8:30 EST) included Harvey and Huang (1991) and Hakkio and Pearce (1985) Ederington and Lee (1993) analyzed the impact of and speed of adjustment to nineteen scheduled monthly macroeconomic news releases on T bond and Eurodollar interest rates and DEM foreign exchange futures. They found that while these announcements a ected the direction of price adjustment for only one minute, the prices ....

....as for the DEM news. The biggest number of news events also occurs at the end of the week on Thursdays and Fridays, rather than in the middle. We can relate the relative clustering of news of Thursdays and Fridays to the higher number of ocial news announcements, as for example pointed out by Ederington and Lee (1993). However, the around the clock news arrival di erentiates the data that we use here from the data sets use by either Ederington and Lee (1993) or Andersen and Bollerslev (1996) who focus on scheduled news announcements. These announcements occur mostly during the morning in Eastern time, re ected ....

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Ederington, Louis H. and Jae Ha Lee (1993). How markets process information: News releases and volatility. Journal of Finance 48(4), 1161-1191.

....days (again reflecting US news) and an end of week spike from 16:05 to 16:10 on Fridays. Tse (1999) has provided similar figures for a much shorter period, without distinguishing between days of the week. The impact of US macroeconomic news released at 08:30 local time, documented in detail by Ederington and Lee (1993) for US futures contracts, is clearly also important for the UK equity market and usually occurs at 13:30 in London. Andersen and Bollerslev (1997) use regression methodology to produce smooth variance multipliers. Their Flexible Fourier Functions (FFF) have been used to produce smoothed ....

Ederington, L. H. and J. H. Lee (1993). How markets process information: news releases and volatility. Journal of Finance 49, 1161--1191.

.... volatility (SV) families, respectively reviewed by Bollerslev, Engle and Nelson (1994) and Shephard (1996) Other explanations of volatility changes, such as day of the week effects (French and Roll, 1986) macroeconomic variables (Schwert, 1989) and the release of scheduled macroeconomic news (Ederington and Lee, 1993, Berry and Howe, 1994) only explain a small fraction of the variability in daily volatility. The original applications of ARCH models to stock market returns (e.g. Bollerslev, 1987, Nelson, 1991) and of SV models to the same type of data (e.g. Taylor, 1986, Jacquier, Polson and Rossi, 1994) all ....

Ederington, L.H. and J.H. Lee, 1993, How markets process information: News releases and volatility, Journal of Finance 48, 1161-1191.

....ation theory : information is reflected in all markets at the same time, as traders use all markets immediately upon receiving market information in order to maximize profits. All public information reaches each trading floor at the same time via electronic news and or traders placing orders. Ederington and Lee (1993) show that economic news is the major 9 Spectral analysis decomposes the data into Fourier series. Fourier coefficients bear a strict relationship to the sample variance of the original series. Thus, the use of the Fourier series allows a type of analysis of variance of the original series. ....

Ederington, L.H. and J.H. Lee, "How Markets Process Information: News Releases and Volatility, "The Journal of Finance, Vol. 48 No.4 (September 1993), pp. 1161-1192.

....that volatility reflects several sources of news, that the persistence of shocks from these sources depends on the source and hence that total volatility follows a long memory process. Scheduled macroeconomic news announcements are known to create additional volatility that is very short lived (Ederington and Lee, 1993), whilst other sources of 10 news that have a longer impact on volatility are required to explain volatility clustering effects that last several weeks. Gallant, Hsu and Tauchen (1999) estimate a volatility process for daily IBM returns that is the sum of only two short memory components yet the ....

Ederington, L.H. and J.H. Lee, 1993, How markets process information : news releases and volatility, Journal of Finance 49, 1161-1191.

....is necessary for the resolution of uncertainty with new public information. Our general findings are that unanticipated events have an immediate impact on prices. What is different from previous studies (Dann, Mayers and Raab (1977) Patell and Wolfson (1984) Jennings and Starks (1985) and Ederington and Lee (1993, 1995) is the speed of the adjustment. Prior studies have documented that the price reaction takes place within one to fifteen minutes. In our study, the initial price reaction takes over twenty minutes; however, prices tend to reverse over the following two hours. Since the events we examine ....

....faster speed of adjustment to overnight news announcements on the NASDAQ, when compared to the NYSE. Their results indicate that the pre opening period facilitates greater price discovery than the call auction process on the NYSE resulting in faster price adjustment for NASDAQ stocks at the open. Ederington and Lee (1993, 1995) examine the impact of scheduled macroeconomic news releases on the interest rate and foreign exchange markets. They find that, in contrast to the stock market, prices react within ten seconds and that the major price adjustment occurs within one minute of the scheduled news releases. Their ....

Ederington, L. H. and J. H. Lee, 1993, "How Markets Process Information: News Releases and Volatility," Journal of Finance 48, 1161-1191.

....for many cash markets, existing derivatives research is concentrated there. We review two representative futures markets studies and related evidence from options markets in the section below. II. Reactions in Derivatives Markets to Scheduled Releases In the first of a series of related papers, Ederington and Lee (1993) analyze transactions data on Eurodollar, Treasury Bond and Deutschemark futures to determine how market participants respond to nineteen macro economic releases. They find that most of the significant impact on return volatility occurs in the first minute after each report is distributed. ....

....and the corresponding three month Treasury Bill returns 3 for various time based samples. Binary independent variables take on the value of one for the announcement days of seven different macro economic series which have been shown to cause cash market reactions in previous research, c.f. Ederington and Lee (1993), Balduzzi, Elton and Green (1998) Green (1999) and Fleming and Remolona (1999b) namely: the Consumer Price Index, Durable Goods Orders, Housing Starts, Industrial Production, Non Farm Payroll and Unemployment, which are always released on the same day) the Producer Price Index, and Retail ....

Ederington, L. and J. Lee. (1993) "How Markets Process Information: News Releases and Volatility," Journal of Finance 48, 1161-1191.

....Hafer (1989) find that unanticipated money announcements a#ect interest rates over the 1970 87 period, while information about inflation, real activity, and trade balances do not a#ect interest rates. However, Cook and Korn (1991) find that the monthly employment report a#ects interest rates. Ederington and Lee (1993) find that announcements of variables (such as the employment report and durable goods orders) a#ect the volatility of interest rates and the dollar deutschmark exchange rate. # See Nathanson (1984) for a description of the survey instrument and for a discussion of the similarities and ....

....First, we have noted that the CCI has quite di#erent e#ects on various asset prices. While we have speculated as to the reasons for this, more rigorous investigation is called for. Second, the use of intraday data may allow more precise estimates of the e#ects of news on financial markets. Ederington and Lee (1993) is one of a few papers that use such data. Third, news other than the CCI has been shown to a#ect the level and volatility of asset prices. GARCH methodology may allow financial economists to gauge more accurately the impact of news on asset prices. ACKNOWLEDGEMENTS The authors thank James ....

Ederington, L. H. and Lee, J. H. (1993) How markets process information: news releases and volatility, Journal of Finance, 48, 1161---91.

....that information is more homogeneous. Consistent with this theoretical model, Hsieh and Kleidon (1996) show that intraday volatility may reflect market learning at the beginning of the day and inventory management by dealers at the end of the day. In a study of dollar German mark futures prices, Ederington and Lee (1993) found that intraday and day of the week volatility patterns were mainly due to the timing of major macroeconomic announcements. Although most of the price adjustment occurs within the first minute, volatility remains considerably higher than normal for another fifteen minutes, or so, and slightly ....

Ederington, L. H. and Lee, J. H.. 1993. How markets Process Information: News Releases and Volatility The Journal of Finance 48 (4): 1161-1191.

....is necessary for the resolution of uncertainty with new public information. Our general findings are that unanticipated events have an immediate impact on prices. What is different from previous studies (Dann, Mayers and Raab (1977) Patell and Wolfson (1984) Jennings and Starks (1985) and Ederington and Lee (1993, 1995) is the speed of the adjustment. Prior studies have demonstrated that the price reaction takes place within one to fifteen minutes. In our study, the initial price reaction takes over twenty minutes; however, prices tend to reverse over the following two hours. Since the events we examine ....

....excess returns lasts no longer than ten to fifteen minutes. However, volatility remains high for several hours following the announcement. Woodruff and Senchack (1988) report that it takes about fourteen minutes for the first post announcement trade following an unexpected earnings announcement. Ederington and Lee (1993, 1995) examine the impact of scheduled macroeconomic news releases on the interest rate and foreign exchange markets. They find that, in contrast to the stock market, prices react within ten seconds and that the major price adjustment occurs within one minute of the scheduled news releases. Their ....

Ederington, L. H. and J. H. Lee, 1993, "How Markets Process Information: News Releases and Volatility," Journal of Finance 48, 1161-1191.

....for many cash markets, existing derivatives research is concentrated there. We review two representative futures markets studies and related evidence from options markets in the section below. II. Reactions in Derivatives Markets to Scheduled Releases In the first of a series of related papers, Ederington and Lee (1993) analyze transactions data on Eurodollar, Treasury Bond and Deutschemark futures to determine how market participants respond to nineteen macro economic releases. They find that most of the significant impact on return volatility occurs in the first minute after each report is distributed. ....

....and the corresponding three month Treasury Bill returns 3 for various time based samples. Binary independent variables take on the value of one for the announcement days for seven different macro economic series which have been shown to cause cash market reactions in previous research, c.f. Ederington and Lee (1993), Balduzzi, Elton and Green (1998) Green (1999) and Fleming and Remolona (1999) namely: the Consumer Price Index, Durable Goods Orders, Housing Starts, Industrial Production, Non Farm Payroll and Unemployment, which are always released on the same day) the Producer Price Index, and Retail ....

Ederington, L. and J. Lee. (1993) "How Markets Process Information: News Releases and Volatility" Journal of Finance 48, 1161-1191.

No context found.

Ederington, Louis H. and Jae Ha Lee. 1993. "How Markets Process Information. News Releases and Volatility." In: The Journal of Finance Vol. 48, No. 4: 1161-1191.

No context found.

Ederington, L.H. and Lee, J.H. (1993). How markets process information: news releases and volatility. Journal of Finance 48, 1161-1191.

No context found.

Ederington, L.H. and Lee, J.H. (1993). How markets process information: news releases and volatility. Journal of Finance 48, 1161-1191.

No context found.

Ederington, Louis H., and Jae Ha Lee, 1993, "How Markets Process Information: News Releases and Volatility," Journal of Finance, 48, 1161-1191.

No context found.

Ederington, Louis H. and Jae Ha Lee, 1973, How markets process information: new releases and volatility, Journal of Finance 48, 1161-1191.

No context found.

Ederington, Louis H., and Jae Ha Lee, 1993, "How Markets Process Information: News Releases and Volatility," Journal of Finance, 48, 1161-1191.

No context found.

Ederington, L.H, and J.H. Lee (1993) "How Markets Process Information: News Releases and Volatility," Journal of Finance, 48, 1161-1191.

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