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

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

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
• Electronic ISSN: 1873-8079
• 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