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Impact of news announcements on the foreign exchange implied volatility

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  • Marshall, Andrew
  • Musayev, Taleh
  • Pinto, Helena
  • Tang, Leilei

Abstract

This paper investigates the impact of news announcements on foreign exchange (FX) implied volatility (IV) for four major FX rates for the 12-year period 1998–2009. The news announcements examined are 16 scheduled US macroeconomic announcements, the release of the minutes of the Federal Open Market Committee (FOMC), official US interest rate changes and Bank of Japan (BOJ) interventions. Our results show some of these announcements impact on FX IV, which is important to market participants for trading and risk management purposes. We find for the US scheduled macroeconomic news announcements FX IV tends to drop on the announcement day, but there are no significant changes in FX IV levels pre- and post-announcements, larger announcement surprises can in some cases influence FX IV differently than smaller surprises, and the impact of positive news is generally not different from the impact of negative news. For the other three announcements, the only impact on FX IV is for BOJ interventions indicating that these interventions result in upward revisions in expected future market uncertainty.

Suggested Citation

  • Marshall, Andrew & Musayev, Taleh & Pinto, Helena & Tang, Leilei, 2012. "Impact of news announcements on the foreign exchange implied volatility," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(4), pages 719-737.
    • Handle: RePEc:eee:intfin:v:22:y:2012:i:4:p:719-737
    DOI: 10.1016/j.intfin.2012.04.006
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    Cited by:

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    2. Adrian Fernandez‐Perez & Raquel López, 2023. "The effect of macroeconomic news announcements on the implied volatility of commodities: The role of survey releases," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(11), pages 1499-1530, November.
    3. Mensi, Walid & Hammoudeh, Shawkat & Yoon, Seong-Min, 2014. "Structural breaks and long memory in modeling and forecasting volatility of foreign exchange markets of oil exporters: The importance of scheduled and unscheduled news announcements," International Review of Economics & Finance, Elsevier, vol. 30(C), pages 101-119.
    4. Mensi, Walid & Hammoudeh, Shawkat & Yoon, Seong-Min, 2014. "How do OPEC news and structural breaks impact returns and volatility in crude oil markets? Further evidence from a long memory process," Energy Economics, Elsevier, vol. 42(C), pages 343-354.
    5. Vortelinos, Dimitrios I. & Koulakiotis, Athanasios & Tsagkanos, Athanasios, 2017. "Intraday analysis of macroeconomic news surprises and asymmetries in mini-futures markets," Research in International Business and Finance, Elsevier, vol. 39(PA), pages 150-168.
    6. Gkillas, Konstantinos & Konstantatos, Christoforos & Tsagkanos, Athanasios & Siriopoulos, Costas, 2021. "Do economic news releases affect tail risk? Evidence from an emerging market," Finance Research Letters, Elsevier, vol. 40(C).
    7. Lyócsa, Štefan & Molnár, Peter & Plíhal, Tomáš, 2019. "Central bank announcements and realized volatility of stock markets in G7 countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 58(C), pages 117-135.
    8. Aharon, David Y. & Qadan, Mahmoud, 2018. "What drives the demand for information in the commodity market?," Resources Policy, Elsevier, vol. 59(C), pages 532-543.
    9. López, Raquel, 2018. "The behaviour of energy-related volatility indices around scheduled news announcements: Implications for variance swap investments," Energy Economics, Elsevier, vol. 72(C), pages 356-364.
    10. Finta, Marinela Adriana, 2021. "Japanese monetary policy and its impact on stock market implied volatility during pleasant and unpleasant weather," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).
    11. Niu, Zibo & Liu, Yuanyuan & Gao, Wang & Zhang, Hongwei, 2021. "The role of coronavirus news in the volatility forecasting of crude oil futures markets: Evidence from China," Resources Policy, Elsevier, vol. 73(C).
    12. Gau, Yin-Feng & Wu, Zhen-Xing, 2017. "Macroeconomic announcements and price discovery in the foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 79(C), pages 232-254.

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    More about this item

    Keywords

    Implied volatility; News announcements; Foreign exchange;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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