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Complexity of ECB Communication and Financial Market Trading

Bernd Hayo (), Kai Henseler, Marc Steffen Rapp () and Johannes Zahner
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Kai Henseler: Philipps University Marburg
Marc Steffen Rapp: Philipps University Marburg
Johannes Zahner: Philipps University Marburg

MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

Abstract: We empirically examine how complexity of ECB communications affects financial market trading based on high-frequency data from European stock index futures trading. Our sample covers ECB press conferences between January 2009 and December 2017, during which unconventional monetary policy measures (UMPM) substantially increased communication complexity. Analysing the linguistic complexity of the introductory statements and differentiating between press conferences with and without UMPM-announcements, we find more complex communication, i.e. high linguistic complexity and UMPM-announcement, is associated with a lower level of contemporaneous trading activity. Moreover, complex communication leads to a temporal shift in trading activity towards the subsequent Q&A session, which suggests that Q&A sessions facilitate market participants’ information processing. Finally, we document a relatively lower similarity of unconventional monetary policy statements and argue that this might explain our finding.

Keywords: ECB; central bank communication; textual analysis; linguistic complexity; readability; financial markets; European stock markets (search for similar items in EconPapers)
JEL-codes: D83 E52 E58 G12 G14 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2020
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac, nep-mon and nep-mst
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Persistent link: https://EconPapers.repec.org/RePEc:mar:magkse:201919

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