When It Cannot Get Better or Worse: The Asymmetric Impact of Good and Bad News on Bond Returns in Expansions and Recessions

Alessandro Beber · Michael W. Brandt

97 citations0/0 files storedEuropean Finance Review

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Financial Markets and Investment Strategies Financial Risk and Volatility Modeling Market Dynamics and Volatility

Abstract

Abstract We examine empirically the response of bond returns and their volatility to good and bad macroeconomic news during expansions and recessions. We find that macroeconomic announcements are most important when they contain bad news for bond returns in expansions and, to a lesser extent, good news in contractions. In expansions, the bond market responds most strongly to bad news in non-farm payrolls, while in recessions good news about inflation is relatively more important. We also document that macroeconomic news impacts the volatility of bond returns at all maturities by increasing jump intensities and altering the jump size distribution.

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References

2005What Explains the Stock Market's Reaction to Federal Reserve Policy?1989New Indexes of Coincident and Leading Economic Indicators 2003Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange 2007Real-time price discovery in global stock, bond and foreign exchange markets 1999Stock Market Overreactions to Bad News in Good Times: A Rational Expectations Equilibrium Model 1993How Markets Process Information: News Releases and Volatility 2007Do macro variables, asset markets, or surveys forecast inflation better?1999Price Formation and Liquidity in the U.S. Treasury Market: The Response to Public Information

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