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The Relevance of Accuracy for the Impact of Macroeconomic News on Volatility

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  • Laakkonen, Helinä
  • Lanne, Markku

Abstract

We study whether the accuracy of news announcements matters for the impact of news on exchange rate volatility. We use high-frequency EUR/USD returns and releases of 20 US macroeconomic indicators, and measure the precision of news in three different ways. When the precision is defined by the size of the first revision of the previous month's figure, we find that precise news increases volatility significantly more than imprecise news. Also, news on indicators that are in general more precise increase volatility more than news on typically imprecise indicators. Finally, we use real time data to measure the 'true' precision of news and find that the size of the first revision of the previous month's figure is a reasonable signal of 'true' precision.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 23718.

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Date of creation: May 2009
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Handle: RePEc:pra:mprapa:23718

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Related research

Keywords: volatility; exchange rates; macroeconomic announcements; high-frequency data;

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References

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  1. Nikolaus Hautsch & Dieter Hess, 2004. "Bayesian Learning in Financial Markets: Testing for the Relevance of Information Precision in Price Discovery," Discussion Papers 04-17, University of Copenhagen. Department of Economics.
  2. Alan Krueger, 1996. "Do Markets Respond More To More Reliable Labor Market Data? A Test of Market Rationality," Working Papers 746, Princeton University, Department of Economics, Industrial Relations Section..
  3. BAUWENS, Luc & BEN OMRANE, Walid & GIOT, Pierre, . "News announcements, market activity and volatility in the euro/dollar foreign exchange market," CORE Discussion Papers RP -1787, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2003. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange," American Economic Review, American Economic Association, vol. 93(1), pages 38-62, March.
  5. Laakkonen, Helinä, 2007. "Exchange rate volatility, macro announcements and the choice of intraday seasonality filtering method," Research Discussion Papers 23/2007, Bank of Finland.
  6. Kathryn Dominguez & Freyan Panthaki, 2005. "What Defines 'News' in Foreign Exchange Markets," Working Papers 547, Research Seminar in International Economics, University of Michigan.
  7. Anat R. Admati, Paul Pfleiderer, 1988. "A Theory of Intraday Patterns: Volume and Price Variability," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 3-40.
  8. Torben G. Andersen & Tim Bollerslev, 1998. "Deutsche Mark-Dollar Volatility: Intraday Activity Patterns, Macroeconomic Announcements, and Longer Run Dependencies," Journal of Finance, American Finance Association, vol. 53(1), pages 219-265, 02.
  9. J. Doyne Farmer & Shareen Joshi, 2000. "The Price Dynamics of Common Trading Strategies," Working Papers 00-12-069, Santa Fe Institute.
  10. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2006. "Real-time price discovery in global stock, bond and foreign exchange markets," International Finance Discussion Papers 871, Board of Governors of the Federal Reserve System (U.S.).
  11. 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.
  12. Laakkonen , Helinä, 2004. "The impact of macroeconomic news on exchange rate volatility," Research Discussion Papers 24/2004, Bank of Finland.
  13. Andersen, Torben G. & Bollerslev, Tim, 1997. "Intraday periodicity and volatility persistence in financial markets," Journal of Empirical Finance, Elsevier, vol. 4(2-3), pages 115-158, June.
  14. Swanson, Norman R. & van Dijk, Dick, 2006. "Are Statistical Reporting Agencies Getting It Right? Data Rationality and Business Cycle Asymmetry," Journal of Business & Economic Statistics, American Statistical Association, vol. 24, pages 24-42, January.
  15. Damodaran, Aswath, 1985. "Economic Events, Information Structure, and the Return-Generating Process," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 20(04), pages 423-434, December.
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Cited by:
  1. Christopher J. Neely, 2011. "A survey of announcement effects on foreign exchange volatility and jumps," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 361-385.

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