Impact of news announcements on the foreign exchange implied volatility

Andrew Marshall, Taleh Musayev, Helena Pinto and Leilei Tang

Journal of International Financial Markets, Institutions and Money, 2012, vol. 22, issue 4, 719-737

Abstract: This paper investigates the impact of news announcements on foreign exchange (FX) implied volatility (IV) for four major FX rates for the 12-year period 1998–2009. The news announcements examined are 16 scheduled US macroeconomic announcements, the release of the minutes of the Federal Open Market Committee (FOMC), official US interest rate changes and Bank of Japan (BOJ) interventions. Our results show some of these announcements impact on FX IV, which is important to market participants for trading and risk management purposes. We find for the US scheduled macroeconomic news announcements FX IV tends to drop on the announcement day, but there are no significant changes in FX IV levels pre- and post-announcements, larger announcement surprises can in some cases influence FX IV differently than smaller surprises, and the impact of positive news is generally not different from the impact of negative news. For the other three announcements, the only impact on FX IV is for BOJ interventions indicating that these interventions result in upward revisions in expected future market uncertainty.

Keywords: Implied volatility; News announcements; Foreign exchange (search for similar items in EconPapers)
JEL-codes: F31 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:22:y:2012:i:4:p:719-737

DOI: 10.1016/j.intfin.2012.04.006

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