Trading European Central Bank rumours on the EUR-USD exchange rate market

Roodbar, Baback, Metcalf, Hugh and Casalin, Fabrizio (2019) Trading European Central Bank rumours on the EUR-USD exchange rate market. International Review of Financial Analysis, 61. pp. 53-70. ISSN 1057-5219

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Roodbar et al - Trading European Central Bank rumours on the EUR-USD exchange rate market AAM.pdf - Accepted Version
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Official URL: https://doi.org/10.1016/j.irfa.2018.11.001

Abstract

This paper investigates whether the release of market-relevant news in the form of rumours on Twitter can explain the excess of market volatility previously attributed to private information, speculation, and noise traders. We define a simple theoretical model to show that the systematic information content of such rumours should result in detectable price effects in macro-markets. We then pinpoint the arrival of 63 rumours of forthcoming ECB actions over a 420-day sample of one-minute spot EUR-USD rates, and show that there is a real-time, intraday increase in market volatility. This largely unexplored information set can potentially account for significant amounts of unexplained volatility in macro-markets and, therefore, identify a possible explanation of one of the most prominent puzzles in price discovery research.

Item Type: Article
Uncontrolled Keywords: Informational efficiency, Price discovery, Exchange rate volatility
Subjects: L100 Economics
N300 Finance
Department: Faculties > Business and Law > Newcastle Business School > Accounting and Finance
Depositing User: Paul Burns
Date Deposited: 29 Jan 2019 11:40
Last Modified: 11 Oct 2019 07:48
URI: http://nrl.northumbria.ac.uk/id/eprint/37782

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