TURN-OF-THE-MONTH AND INTRAMONTH ANOMALIES WITHIN EU BOND MARKETS: THE EFFECT OF U.S. MACROECONOMIC NEWS ANNOUNCEMENTS

Abstract

The turn-of-the-month (hereafter TOM) and intramonth anomalies have been explained on previous studies by the clustered release of U.S. macroeconomic news releases. Both anomalies have been reportedly discovered on the stock and bond markets, but they have not been thoroughly investigated on the EU bond markets during the latest debt crisis.

This thesis investigates, whether the TOM and intramonth anomalies exist in German, Greek, Italian and Spanish government bond markets. In this study the effect of sched-uled U.S. macroeconomic news releases on bond markets is investigated, and further-more, whether they are the cause of the TOM and intramonth effects on the bond mar-kets.

The data used in the study contains daily government bond price indices from January 2006 through December 2011. Two indices (2-year and 10-year) from each country, Germany, Greece, Italy and Spain, are studied to measure the impacts of maturity on the results. In addition, nine important U.S. macroeconomic news releases are chosen to be studied according to previous studies and the Bureau of Labor Statistics (hereafter BLS).

The study uses simple regression based event study. First the existences of the anomalies on the bond markets are tested and after that the effect of the news releases on bond returns are measured. The results suggest that these anomalies exist in the examined countries and that four out of nine investigated news releases have positive and signifi-cant effect on the bond markets. Finally after the effect of the U.S. macroeconomic news releases is controlled for it can be tested whether the anomalies still exists on the bond markets. The findings show that the anomalies are erased after controlling for the effect and therefore the U.S. macroeconomic news releases are the cause of the anoma-lies.