Central Bank Communication or the Media’s Interpretation: What Moves Markets?
AbstractThe goal of this paper is to investigate what type of information from Bank of Canada communication statements or the market commentary based on these statements has a significant effect on the volatility or level of returns in a short-term interest rate market. Two different text mining methods are used to extract interpretable themes from the document set. Bank FAD press release themes emphasizing the balance of risks, effects on GDP, labour, investment, and the CPI, the terrorist attacks of 2001, and the economic effects of SARS, BSE, blackouts, and other shocks all tended to significantly reduce short-term BAX market volatility. In contrast, discussions of oil prices, the Canadian dollar, the inflation projection and whether the economy is at capacity, and certain forward looking statements significantly increased volatility. Market news stories often offset the effects of the Bank’s communication statements and were much more likely to increase market volatility while the Bank reduced it. Market stories were also more likely to have significant effects the greater the difference from the Bank news they covered but could still be important when largely replicating the original information.
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Bibliographic InfoPaper provided by Bank of Canada in its series Working Papers with number 12-9.
Length: 41 pages
Date of creation: 2012
Date of revision:
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Postal: 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada
Phone: 613 782-8845
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Web page: http://www.bank-banque-canada.ca/
Financial markets; Asset pricing;
Find related papers by JEL classification:
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-21 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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