A Mean Variance King? Creation and Resolution of Uncertainty Under the Employment Report’s Reign

Hautsch, Nikolaus ; Hess, Dieter

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URL: http://ub-madoc.bib.uni-mannheim.de/456
URN: urn:nbn:de:bsz:180-madoc-4565
Document Type: Working paper
Year of publication: 2001
The title of a journal, publication series: None
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: G14 E44 ,
Subject headings (SWD): USA , Preisgleichgewicht , Warenwirtschaftssystem
Abstract: This paper delineates the simultaneous impact of non-anticipated information on first and second moments of the intraday price process by including appropriate variables accounting for the news flow into both the mean and the variance function. This allows us to differentiate between the consistent price reaction to surprising news and traders' uncertainty about the precise price impact of this information. Analyzing the US employment report, we find that headline information is almost instantaneously incorporated into T-bond futures prices. Nevertheless, large surprises create considerable uncertainty, in particular 'bad' news. In contrast, if surprises in related headlines cross-validate each other, less room for differences of opinion is left, and hence volatility is decreased.
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