Central bank tone and currency risk premia

Asad Dossani

Journal of International Money and Finance, 2021, vol. 117, issue C

Abstract: I analyze how the tone of central bank press conferences impacts risk premia in the currency market. Tone is measured as the difference between the number of hawkish and dovish phrases mafide during a press conference, as a fraction of total phrases. A one standard deviation increase in the hawkishness of a press conference is associated with a 1.5% decline in the variance risk premium, a 4.9% decline in the subsequent variance swap return, and a 0.2% increase in option implied risk aversion. The impact of tone comes primarily from the questions & answers, or the unscripted portion of the press conference.

Keywords: Monetary Policy; Risk Premia; Exchange Rates (search for similar items in EconPapers)
JEL-codes: E52 F31 G15 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:117:y:2021:i:c:s0261560621000759

DOI: 10.1016/j.jimonfin.2021.102424

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