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

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.
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https://hal.archives-ouvertes.fr/hal-02108174
Contributor : Isabelle Celet <>
Submitted on : Wednesday, April 24, 2019 - 9:18:14 AM
Last modification on : Thursday, April 25, 2019 - 1:36:41 AM

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  • HAL Id : hal-02108174, version 1

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Fabrizio Casalin, Hugh Metcalf, Baback Roodbar. Trading European Central Bank rumours on the EUR-USD exchange rate market. International Review of Financial Analysis, Elsevier, 2018, 61 (C), pp.53-70. ⟨hal-02108174⟩

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