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The Impact of Central Bank Announcements on Asset Prices in Real Time: Testing the Efficiency of the Euribor Futures Market

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  • Carlo Rosa
  • Giovanni Verga

Abstract

This paper examines the effect of European Central Bank communication on the price discovery process in the Euribor futures market using a new tick-by-tick dataset. First, we show that two pieces of news systematically hit financial markets on Governing Council meeting days: the ECB policy rate decision and the explanation of its monetary policy stance. Second, we find that the unexpected component of ECB explanations has a significant and sizeable impact on futures prices. This indicates that the ECB has already acquired some credibility: financial markets seem to believe that it does what it says it will do. Finally, our results suggest that the Euribor futures market is semi-strong form informational efficient.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0764.

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Date of creation: Dec 2006
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Handle: RePEc:cep:cepdps:dp0764

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

Related research

Keywords: market efficiency; central bank communication; news shock; tickby-tick Euribor futures data; event-study analysis.;

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Cited by:
  1. Carlo Rosa & Giovanni Verga, 2008. "The Impact of Central Bank Announcements on Asset Prices in Real Time," International Journal of Central Banking, International Journal of Central Banking, International Journal of Central Banking, vol. 4(2), pages 175-217, June.
  2. Carlo Rosa, 2008. "Talking less and moving the market more: is this the recipe for monetary policy effectiveness?: evidence from the ECB and the Fed," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 19629, London School of Economics and Political Science, LSE Library.

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