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Review of Finance Advance Access published online on September 19, 2009
Review of Finance, doi:10.1093/rof/rfp006
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© The Authors 2009. Published by Oxford University Press on behalf of the European Finance Association. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org

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

Alessandro Beber1 and Michael W. Brandt2

1 Amsterdam Business School, University of Amsterdam
2 Fuqua School of Business, Duke University and NBER

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.

JEL Classification: E43, E44, G12

* We thank two anonymous referees, Andrew Ang, Jean Boivin, Jean-Pierre Danthine, Joost Driessen, Marc Giannoni, Pascal St-Amour, Josef Zechner (the editor) and seminar participants at Cass Business School, Columbia University, and the University of Lausanne for helpful comments. We also thank Clara Vega and Informa Global Markets for providing some of the announcement data.


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