My research focuses on the link between macroeconomic fundamentals and asset prices. Latest research covers the meaning, importance and efficiency of macroeconomic information.
- How important is economic news for bond markets? with Dr. M. Martens
We propose a novel methodology to estimate how much of the variation in bond returns can be attributed to macroeconomic news announcements. We find that economic news can explain 20% of the total daily variation in U.S. Treasury returns. On days with announcements on the FOMC target rate, the employment report and the preliminary GDP the explanatory power increases to 55%, 46%, and 36%, respectively. The importance of news varies over time. In the period with low bond market volatility in 2004 the explanatory power of economic news increases to 51%.
- Does aggregate macroeconomic news drive carry returns? with Dr. M. Martens
We demonstrate that low-yield currencies predominantly react to macroeconomic news consistent with predictions from Taylor-rule models, but high-yield currencies also regularly react in the opposite way. Based on these opposite reactions we construct a novel sentimental news index. Periods of negative surprises in news announcements combined with a sentimental response of high-yield currencies lead to carry losses. In periods where the sentimental responses dominate the sentimental news index explains 27 (26) percent of the variation in monthly carry (S&P500) returns. Hence the sentimental news index is a breakthrough in linking fundamentals to asset prices in the medium term.
- Macroeconomic news and price discovery in international bond markets. with J. Duyvesteyn and Dr. M. Martens
We find that government bond prices fail to immediately and fully incorporate global macroeconomic news. Global news can predict local bond returns up to a week in the future. The predictability originates from economic news in the Eurozone, Japan and Switzerland. While U.S. news alone accounts for up to 71% of the contemporaneous explanatory power, EU, Japan and Switzerland account for up to 80% of the predictive power. This finding can be attributed to persistence in global news and the limited attention hypothesis. Most of the predictability originates from non-U.S. news released closely before important U.S. news.