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Journal Articles International Review of Financial Analysis Year : 2018

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

Hugh Metcalf
  • Function : Author
Baback Roodbar
  • Function : Author

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.
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Dates and versions

hal-02108174 , version 1 (24-04-2019)

Identifiers

  • HAL Id : hal-02108174 , version 1

Cite

Fabrizio Casalin, Hugh Metcalf, Baback Roodbar. Trading European Central Bank rumours on the EUR-USD exchange rate market. International Review of Financial Analysis, 2018, 61 (C), pp.53-70. ⟨hal-02108174⟩
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