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News announcements, market activity and volatility in the Euro/Dollar foreign exchange market

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  • BAUWENS, Luc
  • BEN OMRANE, Walid
  • GIOT, Pierre

Abstract

This paper deals with the impact of nine categories of scheduled and unscheduled news announcements on the Euro/Dollar return volatility. We highlight and analyze the pre-announcement, contemporaneous and postannouncement reactions. Using high-frequency intraday data and within the framework of ARCH-type and realized volatility models, we show that volatility increases in the pre-announcement periods, particularly before scheduled events. Market activity also significantly impacts return volatility as expected by the theoretical literature on order flow.

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File URL: http://alfresco.uclouvain.be/alfresco/download/attach/workspace/SpacesStore/c4d00a3c-d8b0-41e2-8e3d-02ab0f3509cf/coredp_2003_29.pdf
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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2003029.

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Date of creation: 00 Mar 2003
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Handle: RePEc:cor:louvco:2003029

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Keywords: foreign exchange market; volatility; news announcements; high frequency data;

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  1. Martin D. D. Evans and Richard K. Lyons., 1999. "Order Flow and Exchange Rate Dynamics," Research Program in Finance Working Papers RPF-288, University of California at Berkeley.
  2. Richard K. Lyons., 1993. "Tests of Microstructural Hypotheses in the Foreign Exchange Market," Research Program in Finance Working Papers RPF-230, University of California at Berkeley.
  3. Lyons, R.K., 1991. "Private Beliefs and Information Externalities in the Foreign Exchange Market," Papers 91-17, Columbia - Graduate School of Business.
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  5. Torben G. Andersen & Tim Bollerslev, 1996. "Heterogeneous Information Arrivals and Return Volatility Dynamics: Uncovering the Long-Run in High Frequency Returns," NBER Working Papers 5752, National Bureau of Economic Research, Inc.
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  7. Giot,Pierre & Laurent,Sebastien, 2001. "Modelling daily value-at-risk using realized volatility and arch type models," Research Memorandum 014, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  8. Lawrence R. Glosten & Paul R. Milgrom, 1983. "Bid, Ask and Transaction Prices in a Specialist Market with Heterogeneously Informed Traders," Discussion Papers 570, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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  12. Dacorogna, Michael M. & Muller, Ulrich A. & Nagler, Robert J. & Olsen, Richard B. & Pictet, Olivier V., 1993. "A geographical model for the daily and weekly seasonal volatility in the foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 12(4), pages 413-438, August.
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  14. Robert C. Merton, 1980. "On Estimating the Expected Return on the Market: An Exploratory Investigation," NBER Working Papers 0444, National Bureau of Economic Research, Inc.
  15. Cai, Jun & Cheung, Yan-Leung & Lee, Raymond S. K. & Melvin, Michael, 2001. "'Once-in-a-generation' yen volatility in 1998: fundamentals, intervention, and order flow," Journal of International Money and Finance, Elsevier, vol. 20(3), pages 327-347, June.
  16. Jon Danielsson & Richard Payne, 1999. "Real Trading Patterns and Prices in Spot Foreign Exchange Markets," FMG Discussion Papers dp320, Financial Markets Group.
  17. DeGennaro, Ramon P. & Shrieves, Ronald E., 1997. "Public information releases, private information arrival and volatility in the foreign exchange market," Journal of Empirical Finance, Elsevier, vol. 4(4), pages 295-315, December.
  18. Rime,D., 2000. "Private or public information in foreign exchange markets? : an empirical analysis," Memorandum 14/2000, Oslo University, Department of Economics.
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  20. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
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