Public information arrival and investor reaction during a period of institutional change: An episode of early years of a newly independent central bank

Janusz Brzeszczynski and Ali Kutan

Journal of Comparative Economics, 2015, vol. 43, issue 3, 727-753

Abstract: Employing unique data derived directly from the Reuters electronic brokerage platform for currency trading, this paper investigates the reaction of investors to central bank announcements on the foreign exchange market in Poland in the years 2000–2003. Our sample period captures a time during which the National Bank of Poland (NBP) gained independence and it was transforming institutionally and switching to a new monetary policy regime; namely inflation targeting. Evidence indicates that central bank communication helped reduce foreign exchange market uncertainty, measured by the conditional variance of foreign exchange returns, and increased trading volume. The findings suggest that in newly emerging economies with major institutional changes, investors may react significantly to central bank communication, and central banks can hence play an important role in market development during an institutional change. Our results also have broader implications for the applicability of micro-structure models in newly emerging economies.

Keywords: Institutional change; Foreign exchange market; Central bank; Macroeconomic announcements; Investor reaction; Trading volume and volatility (search for similar items in EconPapers)
JEL-codes: E5 F3 G1 O2 P3 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jcecon:v:43:y:2015:i:3:p:727-753

DOI: 10.1016/j.jce.2014.07.004

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