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

Author

Listed:
  • Roodbar, Baback
  • Metcalf, Hugh
  • Casalin, Fabrizio

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.

Suggested Citation

  • Roodbar, Baback & Metcalf, Hugh & Casalin, Fabrizio, 2019. "Trading European Central Bank rumours on the EUR-USD exchange rate market," International Review of Financial Analysis, Elsevier, vol. 61(C), pages 53-70.
    • Handle: RePEc:eee:finana:v:61:y:2019:i:c:p:53-70
    DOI: 10.1016/j.irfa.2018.11.001
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    Cited by:

    1. Anna A. Gainetdinova, 2023. "Asymmetric Impact of Geopolitical Risk and Economic Policy Uncertainty on Russian Ruble Exchange Rate," Journal of Applied Economic Research, Graduate School of Economics and Management, Ural Federal University, vol. 22(2), pages 270-293.

    More about this item

    Keywords

    Informational efficiency; Price discovery; Exchange rate volatility;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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