Financial crises, price discovery, and information transmission: a high-frequency perspective
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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.
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