recent developments in high frequency financial ... - Index of

282
30
25
20
15
10
5
CC
UNEMW
ISM
UNEM
NFP
CPI
DG
PPI HS
PI BI TB
0
GDP
CURRENT MONTH ONE MONTH LATER TWO MONTH LATER
Fig. 5 Timeliness. Each point represents the number of significative coefficients in division four,
the most exhaustive. The vertical lines represent the month when they are released. Fundamentals
are temporally ordered. For example, CC is released at the end of the month it is covering and BI
and TB two months later
Last, there is still an important question to answer. Some fundamentals have a
definitive effect on TY while some others have no effect whatsoever. And some
of these innocuous fundamentals are rather basic. Could we expect that GDP, the
classical measure of the economy, is totally innocuous to TY, one of the most
heavily traded long-term interest rate contracts in the world? Or that the TB, the
most important indicator of import-exports, is irrelevant to the behaviour of TY?
Or that CC, a fundamental based in opinions, has more effect that PI?
The answers are in Fig. 5. It shows the total number of significant parameters (in
temporally according to when they are released. The importance of the fundamental
decreases as the time interval between its release and the period it is covering
increases. This effect, called timeliness, has been acknowledged previously by
other authors (Flemming and Remolona 1999, and Hess 2004).
Timeliness, in this context, simply means that traders are not interested in
information about the state of the economy at some point in time if it is released
some months after. By contrast, the sooner the fundamental is released, the more it
is perceived as important by traders and hence the greater effect it has on TY. It is
the case with CC, released in the month that it is covering. Although CC is based
RS
IP
D. Veredas
the most exhaustive division of the business cycle) for each fundamental and is ordered
on opinions, rather than in tangible goods, workers or prices, it conveys fresh
information about the state of the economy that is rapidly absorbed by traders.
The counter example is GDP. It is released around a month and a half after the
period it refers. Given that it is the tenth fundamental to be released, it does not
really add information and hence agents do not react when it is released. Moreover,
GDP is quarterly released and continuously revised, being another reason for
the lack of interest in it.