Resolution of financial market uncertainty around the release of unemployment rate announcements

We provide evidence that the release of the unemployment rate announcement unconditionally leads to financial market uncertainty resolution in the stock, treasury, commodity, and foreign currency markets. The finding is economically valuable. A simple daily strategy of selling the 10-year Treasury N...

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Bibliographic Details
Published inInternational review of economics & finance Vol. 80; pp. 586 - 596
Main Authors Gu, Chen, Chen, Denghui, Stan, Raluca
Format Journal Article
LanguageEnglish
Published Elsevier Inc 01.07.2022
Subjects
Asymmetric effect
Financial market uncertainty
Implied volatility
Intraday data
Unemployment news
Financial market uncertainty
Implied volatility
Unemployment news
Asymmetric effect
Intraday data
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Summary:We provide evidence that the release of the unemployment rate announcement unconditionally leads to financial market uncertainty resolution in the stock, treasury, commodity, and foreign currency markets. The finding is economically valuable. A simple daily strategy of selling the 10-year Treasury Note Volatility Index futures before the unemployment rate announcement and closing the position after the announcement generates an annualized Sharpe ratio of 3.79, while a similar intraday strategy using VIX futures generates an annualized Sharpe ratio of 3.98. Although this resolution is not conditional of the value of the unemployment rate surprise, we also find that larger (lower) than expected unemployment can weaken (strengthen) the uncertainty resolution process.
ISSN:1059-0560
1873-8036
DOI:10.1016/j.iref.2022.02.077