Good News is No News
Speaker
Abstract
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| News plays a crucial role in determining prices in financial markets. In an efficient market, current prices fully and correctly reflect all available information, such that only truly new information leads to price adjustment. This lecture shows that using high-frequency data makes it possible to accurately measure the reaction of stock prices on the New York stock exchange to new information related to the Federal funds target rate. An unexpected change in the target rate of 25 basis points leads to a return of slightly more than one percent within five minutes after the news announcement. Furthermore, the effects of positive and negative news on stock prices are fundamentally different. In case of positive news the stock market reaction depends upon the magnitude of the unexpected decrease of the interest rate; in case of negative news, stock prices only respond to the fact that an unexpected rate increase occurs. |
| Bio |
| Dick van Dijk (1971) is Professor in Financial Econometrics at the Econometric Institute, School of Economics, Erasmus University Rotterdam. He received his PhD in econometrics at Erasmus University Rotterdam in 1999 (cum laude). His research interests include volatility modelling and forecasting, high-frequency data, asset return predictability, business cycle analysis, and nonlinear time series analysis. He has published in the Journal of Applied Econometrics, Journal of Business and Economic Statistics, Journal of Econometrics, Journal of Empirical Finance, and Review of Economics and Statistics, among others. He co-authored the book Nonlinear Time Series Models in Empirical Finance (with Philip Hans Franses), published by Cambridge University Press in the year 2000. |
| Contact information: |
| Elli Hoek van Dijke |
