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Trading European Central Bank rumours on the EUR-USD exchange rate market

Roodbar, B.; Metcalf, H.; Casalin, F

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Authors

H. Metcalf

F Casalin



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.

Citation

Roodbar, B., Metcalf, H., & Casalin, F. (2019). Trading European Central Bank rumours on the EUR-USD exchange rate market. International Review of Financial Analysis, 61, 53-70. https://doi.org/10.1016/j.irfa.2018.11.001

Journal Article Type Article
Acceptance Date Nov 6, 2018
Online Publication Date Nov 9, 2018
Publication Date Jan 31, 2019
Deposit Date Aug 2, 2019
Publicly Available Date Sep 4, 2019
Journal International Review of Financial Analysis
Print ISSN 1057-5219
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 61
Pages 53-70
DOI https://doi.org/10.1016/j.irfa.2018.11.001
Public URL https://durham-repository.worktribe.com/output/1296036

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