Price adjustment to news with uncertain precision

Arbeitspapier

We analyze how markets adjust to new information when the reliability of news is uncertain and has to be estimated itself. We propose a Bayesian learning model where market participants receive fundamental information along with noisy estimates of news' precision. It is shown that the efficiency of a precision estimate drives the the slope and the shape of price response functions to news. Increasing estimation errors induce stronger nonlinearities in price responses. Analyzing high-frequency reactions of Treasury bond futures prices to employment releases, we find strong empirical support for the model's predictions and show that the consideration of precision uncertainty is statistically and economically important.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: CFR Working Paper ; No. 08-04 [rev.]

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Financial Markets and the Macroeconomy ; Information and Market Efficiency; Event Studies; Insider Trading
• Thema: Bayesian learning ; macroeconomic announcements ; information quality ; precision signals

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Hautsch, Nikolaus ; Hess, Dieter ; Müller, Christoph
• Ereignis: Veröffentlichung
• (wer): University of Cologne, Centre for Financial Research (CFR)
• (wo): Cologne
• (wann): 2011

Weitere Informationen

• Handle: http://hdl.handle.net/10419/70120
• Letzte Aktualisierung: 10.03.2025, 11:42 MEZ