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

Baback Roodbar, Hugh Metcalf and Fabrizio Casalin

International Review of Financial Analysis, 2019, vol. 61, issue C, 53-70

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.

Keywords: Informational efficiency; Price discovery; Exchange rate volatility (search for similar items in EconPapers)
JEL-codes: F31 G12 G14 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:61:y:2019:i:c:p:53-70

DOI: 10.1016/j.irfa.2018.11.001

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