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Activity Number:
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196
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Type:
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Contributed
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Date/Time:
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Monday, August 4, 2008 : 2:00 PM to 3:50 PM
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Sponsor:
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Business and Economics Statistics Section
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| Abstract - #300649 |
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Title:
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How Potent Are News Reversals? Evidence from the Futures Markets
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Author(s):
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Rohan A. Christie-David*+ and Arjun Chatrath and Kiseop Lee
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Companies:
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University of Louisville and University of Portland and University of Louisville
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Address:
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COB Building, College of Business, Department of Finance, Louisville, KY, 40292,
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Keywords:
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News ; Reversal ; volatility ; trading ; macroeconomic
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Abstract:
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We present a theoretical model that predicts a heightening in return volatility following a news reversal. A reversal occurs when a value of an economic indicator that is larger than the forecasted value is followed in the following month by a value smaller than the forecasted value, or vice versa. Our model also suggests that the effects of a news reversal will be more pronounced early in the monthly macroeconomic news cycle. The predictions of the model for trading activity are less clear. We test the main predictions of the model employing intraday data for the nearby Treasury bond futures contract. Consistent with the model, the data show significantly greater responses in volatility when there is a news reversal, than otherwise. Further, the increased sensitivity of volatility is especially perceptible early in the announcement cycle. The findings for trading are less clear.
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