Abstract
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.
Original language | English |
---|---|
Pages (from-to) | 53-70 |
Journal | International Review of Financial Analysis |
Volume | 61 |
Early online date | 9 Nov 2018 |
DOIs | |
Publication status | Published - 1 Jan 2019 |
Keywords
- Informational efficiency
- Price discovery
- Exchange rate volatility