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Do macro-economic news announcements affect the volatility of foreign exchange rates? Some evidence from Australia

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  • Suk-Joong Kim

Abstract

This paper investigates the role of Australian macro-economic announcement news on five major Australian dollar (AUD) exchange rates. Specifically, the daily changes of the exchange rates are modelled to ascertain the existence and the nature of the news effects in the conditional mean and variance of the changes. It is found that a higher than expected current account deficit and unemployment rate announcements depreciated the AUD, and an unexpectedly higher GDP growth announcement appreciated it. Current account deficit, CPI and unemployment news announcements significantly raised the conditional volatility of the changes of the AUD on the days of their announcements, except for the BP/AUD for the CPI news, and there is some evidence of retail sales news reducing it. In general, the evidence is consistent with a view that a release of new information creates uncertainty in the markets due to a lack of consensus on the effects of the particular news announcement and the necessary course of action. In addition, the EGARCH(1,1)-in-Mean modelling of the daily changes of the exchange rates is found to be very successful in addressing the observed statistical properties of the daily changes: leptokurtosis, time-varying heteroscedasticity and asymmetric response of the conditional volatility to unexpected changes.

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  • Suk-Joong Kim, 1999. "Do macro-economic news announcements affect the volatility of foreign exchange rates? Some evidence from Australia," Applied Economics, Taylor & Francis Journals, vol. 31(12), pages 1511-1521.
    • Handle: RePEc:taf:applec:v:31:y:1999:i:12:p:1511-1521
    DOI: 10.1080/000368499323030
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    Cited by:

    1. Suk-Joong Kim & Jeffrey Sheen, 2018. "Interventions in the Yen-Dollar Spot Market: A Story of Price, Volatility and Volume," World Scientific Book Chapters, in: Information Spillovers and Market Integration in International Finance Empirical Analyses, chapter 3, pages 73-106, World Scientific Publishing Co. Pte. Ltd..
    2. Christopher J. Neely, 2011. "A survey of announcement effects on foreign exchange volatility and jumps," Review, Federal Reserve Bank of St. Louis, vol. 93(Sep), pages 361-385.
    3. Suk-Joong Kim & Michael D. McKenzie & Robert W. Faff, 2018. "Macroeconomic News Announcements and the Role of Expectations: Evidence for US Bond, Stock and Foreign Exchange Markets," World Scientific Book Chapters, in: Information Spillovers and Market Integration in International Finance Empirical Analyses, chapter 5, pages 151-174, World Scientific Publishing Co. Pte. Ltd..
    4. Ehrmann, Michael & Osbat, Chiara & Stráský, Jan & Uusküla, Lenno, 2014. "The euro exchange rate during the European sovereign debt crisis – Dancing to its own tune?," Journal of International Money and Finance, Elsevier, vol. 49(PB), pages 319-339.
    5. Wan, Jer-Yuh & Kao, Chung-Wei, 2008. "The euro and pound volatility dynamics: An investigation from conditional jump process," Research in International Business and Finance, Elsevier, vol. 22(2), pages 193-207, June.
    6. Shu-Chen Chang & Chung-Hua Shen, 2011. "The effect of exchange-rate uncertainty on unemployment in three developing Asian countries: evidence from bivariate GARCH approach," Applied Economics Letters, Taylor & Francis Journals, vol. 18(8), pages 783-788.
    7. Kim, Suk-Joong & Kortian, Tro & Sheen, Jeffrey, 2000. "Central bank intervention and exchange rate volatility -- Australian evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(3-4), pages 381-405, December.
    8. Fathi Nakai & Tarek Chebbi, 2023. "The informational content of sovereign credit rating: another look," Journal of Asset Management, Palgrave Macmillan, vol. 24(5), pages 353-373, September.
    9. Olcay Yucel Emir & Fatih Ozatay & Gulbin Sahinbeyoğlu, 2007. "Effects of US interest rates and news on the daily interest rates of a highly indebted emerging economy: evidence from Turkey," Applied Economics, Taylor & Francis Journals, vol. 39(3), pages 329-342.
    10. Jordi Pons-Novell, 2003. "Strategic bias, herding behaviour and economic forecasts," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 22(1), pages 67-77.
    11. Ozge Akinci & Olcay Yucel Culha & Umit Ozlale & Gulbin Sahinbeyoğlu, 2006. "The effectiveness of foreign exchange interventions under a floating exchange rate regime for the Turkish economy: a post-crisis period analysis," Applied Economics, Taylor & Francis Journals, vol. 38(12), pages 1371-1388.

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