Jon Faust
mostly economics
Authors: Faust, Jon; Jonathan H. Wright
Source: manuscript, 2009
Abstract: Financial asset returns are widely agreed to be somewhat predictable. This paper is concerned with decomposing these predictable returns into those earned in short windows around the times of macroeconomic news announcements (which mostly come out at 8:30am) and the predictable returns that are earned at other times. The statistically significant predictability in bond returns appears to accrue only around news announcements--were it not for the effects of news announcements, we could not reject the expectations hypothesis. This can be interpreted as direct evidence for a time-varying price of jump risk. It also motivates consideration of a trading strategy that takes a position in bonds only around news announcements.
