Thick vs. Thin-Skinned: Technology, News, and Financial Market Reaction

Barry Eichengreen, Romain Lafarguette and Arnaud Mehl

No 2017/091, IMF Working Papers from International Monetary Fund

Abstract: We study the impact of technology on the reaction of financial markets to information, focusing on the foreign exchange market. We contrast the “thin-skinned” view that technological improvements cause markets to react more to new information with the “thick-skinned” view that they react less. We pinpoint exogenous technological changes using the timing of the connection of countries via the submarine fiber-optic cables used for electronic trading. Cable connections dampen the response of exchange rates to macroeconomic news, consistent with the “thick-skinned” hypothesis. This is in line with the view that technology eases access to information and reduces trend-following behavior. According to our estimates, cable connections reduce the reaction of exchange rates to U.S. monetary policy news by 50 to 80 percent.

Keywords: WP; interest rate; submarine cable; Technology; Submarine Fiber-Optic Cables; Foreign Exchange Market; Macro Announcements; cable connection; standard deviation; S&P 500; currencies of country; fiber optic cable; trading strategy; market participant; policy news; cable network; market reaction; trading location; policy interest rate news; Central bank policy rate; Currencies; Exchange rates; Currency markets; Global (search for similar items in EconPapers)
Pages: 37
Date: 2017-04-07
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=44810 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2017/091

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().