When it Cannot Get Better or Worse: The Asymmetric Impact of Good and Bad News On Bond Returns in Expansions and Recessions

Posted: 25 Jan 2010

See all articles by Alessandro Beber

Alessandro Beber

Cass Business School; Centre for Economic Policy Research (CEPR)

Michael W. Brandt

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Date Written: January 2010

Abstract

We examine empirically the response of bond returns and their volatility to good and bad macroeconomic news during expansions and recessions. We find that macroeconomic announcements are most important when they contain bad news for bond returns in expansions and, to a lesser extent, good news in contractions. In expansions, the bond market responds most strongly to bad news in non-farm payrolls, while in recessions good news about inflation is relatively more important. We also document that macroeconomic news impacts the volatility of bond returns at all maturities by increasing jump intensities and altering the jump size distribution.

Keywords: E43, E44, G12

Suggested Citation

Beber, Alessandro and Brandt, Michael W., When it Cannot Get Better or Worse: The Asymmetric Impact of Good and Bad News On Bond Returns in Expansions and Recessions (January 2010). Review of Finance, Vol. 14, Issue 1, pp. 119-155, 2010, Available at SSRN: https://ssrn.com/abstract=1541043 or http://dx.doi.org/rfp006

Alessandro Beber (Contact Author)

Cass Business School ( email )

London, EC2Y 8HB
Great Britain

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Michael W. Brandt

Duke University - Fuqua School of Business ( email )

1 Towerview Drive
Durham, NC 27708-0120
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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