TY - JOUR
T1 - Trading European Central Bank rumours on the EUR-USD exchange rate market
AU - Roodbar, Baback
AU - Metcalf, Hugh
AU - Casalin, Fabrizio
PY - 2019/1/1
Y1 - 2019/1/1
N2 - This paper investigates whether the release of market-relevant news in the form of rumours on Twitter can explain the excess of market volatility previously attributed to private information, speculation, and noise traders. We define a simple theoretical model to show that the systematic information content of such rumours should result in detectable price effects in macro-markets. We then pinpoint the arrival of 63 rumours of forthcoming ECB actions over a 420-day sample of one-minute spot EUR-USD rates, and show that there is a real-time, intraday increase in market volatility. This largely unexplored information set can potentially account for significant amounts of unexplained volatility in macro-markets and, therefore, identify a possible explanation of one of the most prominent puzzles in price discovery research.
AB - This paper investigates whether the release of market-relevant news in the form of rumours on Twitter can explain the excess of market volatility previously attributed to private information, speculation, and noise traders. We define a simple theoretical model to show that the systematic information content of such rumours should result in detectable price effects in macro-markets. We then pinpoint the arrival of 63 rumours of forthcoming ECB actions over a 420-day sample of one-minute spot EUR-USD rates, and show that there is a real-time, intraday increase in market volatility. This largely unexplored information set can potentially account for significant amounts of unexplained volatility in macro-markets and, therefore, identify a possible explanation of one of the most prominent puzzles in price discovery research.
KW - Informational efficiency
KW - Price discovery
KW - Exchange rate volatility
U2 - 10.1016/j.irfa.2018.11.001
DO - 10.1016/j.irfa.2018.11.001
M3 - Article
VL - 61
SP - 53
EP - 70
JO - International Review of Financial Analysis
JF - International Review of Financial Analysis
SN - 1057-5219
ER -