Macroeconomic Fundamentals, Price Discovery and Volatility Dynamics in Emerging Markets

July 1, 2009

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This study characterizes volatility dynamics in external emerging bond markets and examines how prices and volatility respond to news about macroeconomic fundamentals. As in mature bond markets, macroeconomic surprises in external emerging bond markets are found to affect both conditional returns and volatility, with the effects on volatility being more pronounced and longer lasting than those on prices. Yet the process of information absorption tends to be more drawn out than in mature bond markets. International and regional macroeconomic news is at least as important as local news for both asset valuations and volatility dynamics in external emerging bond markets.

Subject: Bonds, Consumer price indexes, Emerging and frontier financial markets, Financial crises, Financial institutions, Financial markets, Prices, Securities markets

Keywords: announcements, asset class, bond pricing, Bonds, Consumer price indexes, Emerging and frontier financial markets, emerging market, emerging markets, Global, high-frequency data, interest rate, macroeconomic news, market expectation, market microstructure literature, market reaction, mature market, news spillovers, Securities markets, survey data, treasury note, WP

Pages:
31
Volume:
2009
DOI:
https://doi.org/10.5089/9781451872941.001
Issue:
147
Series:
Working Paper No. 2009/147
Stock No:
WPIEA2009147
ISBN:
9781451872941
ISSN:
1018-5941

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