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Business Cycle Forecasts and their Implications for High Frequency Stock Market Returns
Author(s) -
Entorf Horst,
Gross Anne,
Steiner Christian
Publication year - 2012
Publication title -
journal of forecasting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.543
H-Index - 59
eISSN - 1099-131X
pISSN - 0277-6693
DOI - 10.1002/for.1206
Subject(s) - business cycle , volatility (finance) , economics , stock (firearms) , stock market , econometrics , financial economics , index (typography) , stock market index , monetary economics , macroeconomics , computer science , mechanical engineering , paleontology , horse , biology , world wide web , engineering
This article contributes to the literature on business cycle forecasts and their impact on asset prices by investigating how the 15‐second Xetra DAX returns reflect the monthly announcements of the two best‐known business cycle forecasts for Germany, i.e., the Ifo Business Climate Index and the ZEW Indicator of Economic Sentiment. The analysis disentangles ‘good’ macroeconomics news from ‘bad’ news and, simultaneously, considers time intervals with and without confounding announcements from other sources. Releases from both institutes lead to an immediate response of returns occurring 15 seconds after the announcements, i.e. within the first possible time interval. Announcements of both institutes are also clearly and immediately reflected in the volatility, which remains at a significantly higher level for approximately 2 minutes. Findings can be used to improve high‐frequency forecasts in stock markets. Copyright © 2011 John Wiley & Sons, Ltd.