Financial crises, price discovery, and information transmission: a high-frequency perspective
- 107 Downloads
This paper examines the price discovery processes before and during the 2007–2009 subprime and financial crisis, as well as the subsequent European sovereign crisis, for American and German stock and bond markets, as well as for U.S. Dollar/Euro FX. Based on 5-s intervals, we analyze how asset prices interact conditional on macroeconomic announcements from the USA and Germany. Our results show significant co-movement and spillover effects in returns and volatility, reflecting systematic information transmission mechanisms among asset markets. We document strong state dependence with a substantial increase in inter-asset spillovers and feedback effects during times of crisis.
KeywordsFinancial crises Macroeconomic announcements Price discovery process Information transmission process High-frequency data
JEL ClassificationG01 G12 G14 G15
We are grateful to the anonymous referee as well as Yakov Amihud, Jean-Noël Barrot, Adam Clements, Alfonso Dufour, Falko Fecht, Reint Gropp, Ferenc Horvath, Olga Lebedeva, Bonnie F. Van Ness, Rico von Wyss, and the participants at the Brown Bag Seminar at the EBS Business School, the Eastern Finance Association annual meeting 2012, the Midwest Finance Association 2012 annual meeting, the 2012 FMA European Conference, the SGF Conference 2016, the IFABS 2016 Conference in Barcelona, the 4th Paris Financial Management Conference (PFMC) 2016, the 14th EUROFIDAI/AFFI/ESSEC Paris December Finance Meeting, and the Bundesbank Project Group on “Big Data” Workshop. We also thank the Deutsche Börse for providing the data, especially Axel Schorn and Holger Wohlenberg for MNI data about macroeconomic announcements.
- Andersen, T.G., Bollerslev, T., Diebold, F.X., Labys, P.: Understanding, optimizing, using and forecasting realized volatility and correlation. Working Paper (1999)Google Scholar
- Andersson, M.: Using intraday data to gauge financial market responses to ferderal reserve and ECB monetary policy decisions. Int. J. Central Bank. 6, 117–146 (2010)Google Scholar
- Bongaerts, D., Roll, R., Rösch, D., Van Dijk, M.A., Yuferova, D.: On the propagation of shocks across international equity markets: a microstructure perspective. Working Paper (2014)Google Scholar
- Forbes, K., Rigobon, R.: No contagion, only interdependence: measuring stock market co-movements. J. Financ. Econ. 57, 2223–2261 (2001)Google Scholar
- Goldberg, L.S., Grisse, C.: Time variation in asset price responses to macro announcements. NBER Working Paper Series (2013)Google Scholar
- Hansen, P.R., Lunde, A.: An optimal and unbiased measure of realized variance based on intermittent high-frequency data. Unpublished paper, Department of Economics, Stanford University (2003)Google Scholar
- Zhou, B.: High-frequency data and volatility in foreign exchange rates. J. Bus. Econ. Stat. 14, 45–52 (1996)Google Scholar