Speed, Algorithmic Trading, and Market Quality Around Macroeconomic News Announcements

The unifying theme of this dissertation is the study of the role of macroeconomic news announcements in the context of the equity market. We focus on two important areas of the asset pricing theory, namely price discovery and equity risk premium forecasting. Chapter 2 investigates the time-varying sensitivity of stock returns to scheduled macroeconomic news announcements (MNAs) using high-frequency data. We present new insights into how efficiently stock returns incorporate the informational content of MNAs. We further provide evidence that the stock market response to MNAs is cyclical, and finally we conclude Chapter 2 with an investigation into the factors driving the time-varying sensitivity of stock return to MNAs. Chapter 3 investigates the time-varying sensitivity of stock returns in the context of unscheduled macroeconomic news announcements using high-frequency data. We investigate the speed and persistence in stock returns’ response to unscheduled macro-news announcements, and whether the reactions are dependent on the state of the economy, or general investor sentiment level. Combined, Chapters 2 and 3 provide interesting insights into how equity market participants react to the arrival of scheduled and unscheduled macro-announcements, under varying economic conditions. Chapter 4 focuses on equity risk premium forecasting. We investigate the predictive ability of option-implied volatility variables at monthly horizon, under varying economic conditions. We innovate by constructing monthly announcement and non-announcement option-implied volatility predictors and assess whether the monthly announcement option-implied volatility predictors contain additional information for better out-of-sample predictions of the monthly equity risk premium. Each of the three empirical chapters explores a unique aspect of the asset pricing theory in the context of the U.S. equity market.

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Algorithmic Trading Efficiency and its Impact on Market-Quality

Asia-Pacific Financial Markets ◽

10.1007/s10690-021-09353-5 ◽

2021 ◽

Author(s):

Ritesh Kumar Dubey ◽

A. Sarath Babu ◽

Rajneesh Ranjan Jha ◽

Urvashi Varma

Keyword(s):

Algorithmic Trading ◽

Market Quality ◽

Trading Efficiency

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Sovereign CDS Premiums’ Reaction to Macroeconomic News: An Empirical Investigation

Complexity ◽

10.1155/2021/5568698 ◽

2021 ◽

Vol 2021 ◽

pp. 1-13

Author(s):

Min Lu ◽

Michele Passariello ◽

Xing Wang

Keyword(s):

Empirical Investigation ◽

Credit Default Swap ◽

Sample Period ◽

Market Uncertainty ◽

Macroeconomic News ◽

Sovereign Credit ◽

News Announcements ◽

Credit Default ◽

Default Swap

We assess the efficiency of the sovereign credit default swap (CDS) market by investigating how sovereign CDS spreads react to macroeconomic news announcements. Contrary to the vast majority of the existing literature, one of our main findings supports the hypothesis that news announcements reduce market uncertainty and, thus, that both better- and worse-than-expected news lower CDS prices during our sample period. In addition, we find that CDS spreads respond differently to the four macroindicators across the three different regions. Our findings might help investors in these areas to interpret the surprises of macronews announcements when making decisions in CDS markets.

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Are hedge fund returns affected by media coverage of macroeconomic news?

Studies in Economics and Finance ◽

10.1108/sef-10-2017-0289 ◽

2019 ◽

Vol 36 (3) ◽

pp. 427-439

Author(s):

Sandip Dutta ◽

James Thorson

Keyword(s):

Hedge Funds ◽

Media Coverage ◽

Hedge Fund ◽

Real Sector ◽

Macroeconomic News ◽

Content Type ◽

Fund Managers ◽

News Announcements ◽

Hedge Fund Returns ◽

The Impact

Purpose Extant literature suggests that the difficulty associated with the interpretation of macroeconomic news announcements by the market in general in different economic environments, might be the reason why most studies do not find any significant relationship between real-sector macroeconomic variables and financial asset returns. This paper aims to use a different approach to measure macroeconomic news. The objective is to examine if a different measure of a macroeconomic news variable, constructed from media coverage of the same, significantly affects hedge fund returns. Design/methodology/approach The authors use a news index for unemployment, which is a real-sector variable, constructed from newspaper coverage of unemployment announcements and examine its impact on hedge fund returns. Findings Contrary to the other studies that examine the impact of macroeconomic news on hedge fund returns, the authors find that media coverage of unemployment news announcements significantly affects hedge fund returns. Practical implications Overall, this paper demonstrates that the manner in which the market interprets macroeconomic news announcements in different economic environments is probably a more relevant factor for hedge funds and is more likely to impact hedge fund returns. In conjunction with variables – constructed from media coverage of unemployment news announcements – that factor in the manner of interpretation, it is found that surprises also matter for hedge fund returns. This is an important consideration for hedge fund managers as well. Originality/value To the best of the authors’ knowledge, this is the first study that examines the impact of media coverage of macroeconomic news announcements on hedge fund returns and finds significantly different results with real-sector macro variables.

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