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The intra-day impact of communication on euro-dollar volatility and jumps

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  • Dewachter, Hans
  • Erdemlioglu, Deniz
  • Gnabo, Jean-Yves
  • Lecourt, Christelle

Abstract

In this paper, we examine the intra-day effects of verbal statements and comments on the FX market uncertainty using two measures: continuous volatility and discontinuous jumps. Focusing on the euro-dollar exchange rate, we provide empirical evidence of how these two sources of uncertainty matter in measuring the short-term reaction of exchange rates to communication events. Talks significantly trigger large jumps or extreme events for approximately an hour after the news release. Continuous volatility starts reacting prior to the news, intensifies around the release time and stays at high levels for several hours. Our results suggest that monetary authorities generally tend to communicate with markets on days when uncertainty is relatively severe, and higher than normal. Disentangling the US and Euro area statements, we also find that abnormal levels of volatility are mostly driven by the communication of the Euro area officials rather than US authorities.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 43 (2014)
Issue (Month): C ()
Pages: 131-154

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Handle: RePEc:eee:jimfin:v:43:y:2014:i:c:p:131-154

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Web page: http://www.elsevier.com/locate/inca/30443

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Keywords: Central bank communication; Exchange rate communication; Official statements; High-frequency data; Jump process; Volatility;

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