Macroeconomic news is also the most important source of information in Treasury
bond markets (de Goeij and Marquering, 2006). Jones, Lamont, and Lumsdaine (1998)
and Christiansen (2000) find significant increases in bond market volatility on days with
Producers’ Price Index (PPI) and employment announcements. Examining the effects of
announcements of the PPI and the employment situation on the volatility of US
Treasury bond futures, Li and Engle (1998) document that negative shocks increase
volatility, while positive shocks depress volatility on consecutive days. Fleming and
Remolona (1999) observe high volatility and volatility persistence after the release of
scheduled macroeconomic announcements. Investigating 1-year, 3-year, 5-year, and 10-
year US Treasury bonds, de Goeij and Marquering (2006) find that macroeconomic
news announcement shocks have a strong impact on the dynamics of bond market
volatility. Furthermore, releases of employment information and PPI announcements
play an influential role by affecting the intermediate and long end of the yield curve,
whereas monetary policy information seems to affect short-term bond volatility.
Extending the study of Ederington and Lee (1993) to option markets, Ederington and
Lee (1996) find that unscheduled macroeconomic announcements lead to increases in
option-implied standard deviation, while scheduled announcements generally lead to
drops in implied standard deviation. Nofsinger and Prucyk (2003) also find that there is
an immediate increase of volatility in the S&P 100 Index option after macroeconomic
announcements. The authors further document that most of the high volatility after
announcements comes from bad news announcements.
In equity markets, using the number of news releases by Reuter’s News Service per
unit of time as a measure of public information flow on financial markets, Berry and
Howe (1994) find an insignificant relationship between public information arrival and
the volatility of the S&P 500 Index. Relying on the number of announcements released
daily by Dow Jones & Co. as a measure of public information, Mitchell and Mulherin
(1994) find a weak direct relationship between news arrivals and price volatility. In a
more recent study, Ryan and Taffler (2004) find that reported corporate news of the
largest 350 stocks listed on the London Stock Exchange drive a significant proportion of
price changes and trading volume. Kalev et al. (2004) conduct an intraday study on the
relation between news arrivals and volatility. They find that news arrivals have a positive
effect on conditional volatility and the persistence of volatility is greatly reduced once
the impact of news arrivals is accounted for. Analyzing intraday market dynamics
around public information arrivals, Ranaldo (2006) observes that earning announce-
ments widen the spread and volatility, while other firm-specific news attracts both
liquidity and trading.
12.3 Data
We have collected intraday data for the S&P/ASX 200 Index and the SPI 200 Futures
for the period between October 1, 2003 and September 30, 2009 from the Securities
Industry Research Centre of Australasia (SIRCA). Our sample includes 30-minute index
and futures returns as well as the total trading volume of the index and futures.
Consistent with Mitchell and Mulherin (1994), the total trading volume of the index
is measured as the dollar value of all transacted shares of companies that the index
274 News and risk