Monetary Policy Announcement and Algorithmic News Trading in the Foreign Exchange Market

Keiichi Goshima and Yusuke Kumano
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Keiichi Goshima: Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: keiichi.goshima@boj.or.jp)
Yusuke Kumano: Deputy Director and Economist, Institute for Monetary and Economic Studies (currently, Research and Statistics Department), Bank of Japan (E-mail: yuusuke.kumano@boj.or.jp)

No 18-E-13, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

Abstract: We analyze the effects of algorithmic news trading (ANT) in the foreign exchange market around the time that the Bank of Japan makes public announcements of its policy decisions. To observe the activity level of ANT, we propose a novel measure based on a web access record to a central bank's webpage. We find that our proposed measure appropriately captures the activity level of ANT. Employing an event study analysis and a VAR analysis, we find that ANT increases market volatility immediately after the monetary policy announcements, and that ANT activity indirectly decreases market liquidity through increasing volatility. In addition, we suggest that ANT trades based on changes of texts on monetary policy announcements.

Keywords: Algorithmic trading; Monetary policy; High frequency data; Foreign exchange market; News trading; Market microstructure; Web access record (search for similar items in EconPapers)
JEL-codes: E58 F31 G14 (search for similar items in EconPapers)
Date: 2018-08
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-mst
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