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Central bank tone and currency risk premia

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  • Dossani, Asad

Abstract

I analyze how the tone of central bank press conferences impacts risk premia in the currency market. Tone is measured as the difference between the number of hawkish and dovish phrases mafide during a press conference, as a fraction of total phrases. A one standard deviation increase in the hawkishness of a press conference is associated with a 1.5% decline in the variance risk premium, a 4.9% decline in the subsequent variance swap return, and a 0.2% increase in option implied risk aversion. The impact of tone comes primarily from the questions & answers, or the unscripted portion of the press conference.

Suggested Citation

  • Dossani, Asad, 2021. "Central bank tone and currency risk premia," Journal of International Money and Finance, Elsevier, vol. 117(C).
    • Handle: RePEc:eee:jimfin:v:117:y:2021:i:c:s0261560621000759
    DOI: 10.1016/j.jimonfin.2021.102424
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    Cited by:

    1. Baranowski, Pawel & Bennani, Hamza & Doryń, Wirginia, 2023. "Stock price reaction to ECB communication: Introductory Statements vs. Questions & Answers," Finance Research Letters, Elsevier, vol. 52(C).
    2. Dossani, Asad, 2024. "Monetary policy and currency variance risk premia," Research in International Business and Finance, Elsevier, vol. 69(C).
    3. Yu, Zhen & Liu, Wei & Yang, Fuyu, 2023. "A central bankers’ sentiment index of global financial cycle," Finance Research Letters, Elsevier, vol. 57(C).

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    More about this item

    Keywords

    Monetary Policy; Risk Premia; Exchange Rates;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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