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

Preview

Text Roodbar et al - Trading European Central Bank rumours on the EUR-USD exchange rate market AAM.pdf - Accepted Version Available under License Creative Commons Attribution Non-commercial No Derivatives 4.0. Download (1MB) | Preview

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.

Actions (login required)

View Item

Downloads