Interest rate expectations and uncertainty during ECB Governing Council days: Evidence from intraday implied densities of 3-month EURIBOR

Olivier Vergote and Josep Maria Puigvert Gutiérrez

Journal of Banking & Finance, 2012, vol. 36, issue 10, 2804-2823

Abstract: This paper analyses changes in short-term interest rate expectations and uncertainty during ECB Governing Council days. For this purpose, it extends the estimation of risk-neutral probability density functions up to tick frequency. In particular, the non-parametric estimator of these densities, which is based on fitting implied volatility curves, is applied to estimate intraday expectations of 3-month EURIBOR 3months ahead. Estimates of the noise impact on the statistical moments of the densities enhance the interpretation. In addition, the paper assesses the impact of the ECB communication during Governing Council days. The results show that the whole density may react to the communication and that such repositioning of market participants’ expectations will contain information beyond that of changes in the consensus view already observed in forward rates. The results also point out the relevance of the press conference in providing extra information and triggering an adjustment process for interest rate expectations.

Keywords: Risk-neutral probability density functions; Option-implied densities; Interest rate expectations; Central bank communication; Intraday analysis; Announcement effects; Tick data (search for similar items in EconPapers)
JEL-codes: C14 E43 E52 E58 E61 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Interest rate expectations and uncertainty during ECB governing council days: evidence from intraday implied densities of 3-month Euribor (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:36:y:2012:i:10:p:2804-2823

DOI: 10.1016/j.jbankfin.2012.06.014

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