TY - JOUR
T1 - Trading European Central Bank rumours on the EUR-USD exchange rate market
AU - Roodbar, Baback
AU - Metcalf, Hugh
AU - Casalin, Fabrizio
N1 - Publisher Copyright:
© 2018 Elsevier Inc.
PY - 2019/1
Y1 - 2019/1
N2 - 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.
AB - 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.
KW - Exchange rate volatility
KW - Informational efficiency
KW - Price discovery
UR - http://www.scopus.com/inward/record.url?scp=85057425306&partnerID=8YFLogxK
U2 - 10.1016/j.irfa.2018.11.001
DO - 10.1016/j.irfa.2018.11.001
M3 - Article
SN - 1057-5219
VL - 61
SP - 53
EP - 70
JO - International Review of Financial Analysis
JF - International Review of Financial Analysis
ER -