Risk and Return Reactions to Monthly Announcements of Business Cycle Forecasts An Event Study Based on High-Frequency Data

The paper analyses the reaction of high frequency 15-second DAX returns to public announcements of ifo and ZEW economic forecasts. Both releases lead to an immediate response of returns occurring 15 seconds after the announcements, i.e. within the first possible time interval. Positive (negative) news result in an immediate increase (decrease) of returns. A first reverse reaction becomes apparent after 30 seconds for ifo and after 45 seconds for ZEW. Announcements of both institutes are also clearly and immediately reflected in the volatility, which remains at a significantly higher level for approximately two minutes, and they remain slightly elevated for approximately 15 minutes. Finally, combining returns and volatility in a GARCH(1,1)-model, the paper discusses the hypothesis that the serial correlation usually found in GARCH returns might stem from an omitted variable bias caused by neglected impacts from macroeconomic news in both mean and variance equations.