Financial Markets and the Macro Economy

. We have benefited from the comments of Clara Vega, Guojun Wu, and participants in a seminar at Monash University. Any remaining errors are our own. The objective of this paper is to provide a deeper insight into the links be-tween financial markets and the real economy. To that end, we study the short-term anticipation and response of U.S. stock, Treasury, and corpo-rate bond markets to the first release of U.S. macroeconomic information. Specifically, we focus on the impact of these announcements not only on the level, but also on the volatility and comovement of those assets ’ returns. For that purpose, we estimate several extensions of the parsimonious amended GARCHmodel of Engle (2002) for the excess holding-period returns on seven portfolios of these asset classes. We find that the process of price formation in the U.S. financial markets appears to be driven by fundamentals; yet, “excessive ” volatility and comovement play an important role in return dy