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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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File URL: http://mpra.ub.uni-muenchen.de/23718/
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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. Swanson, N.R. & van Dijk, D.J.C., 2001. "Are statistical reporting agencies getting it right? Data rationality and business cycle asymmetry," Econometric Institute Research Papers EI 2001-28, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  2. Alan B. Krueger, 1996. "Do Markets Respond More to More Reliable Labor Market Data? A Test of Market Rationality," NBER Working Papers 5769, National Bureau of Economic Research, Inc.
  3. 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.
  4. Laakkonen , Helinä, 2004. "The impact of macroeconomic news on exchange rate volatility," Research Discussion Papers 24/2004, Bank of Finland.
  5. 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.
  6. J. Doyne Farmer & Shareen Joshi, 2000. "The Price Dynamics of Common Trading Strategies," Working Papers 00-12-069, Santa Fe Institute.
  7. Laakkonen, Helinä, 2007. "Exchange rate volatility, macro announcements and the choice of intraday seasonality filtering method," Research Discussion Papers 23/2007, Bank of Finland.
  8. Hautsch, Nikolaus & Hess, Dieter, 2007. "Bayesian Learning in Financial Markets: Testing for the Relevance of Information Precision in Price Discovery," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(01), pages 189-208, March.
  9. 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.
  10. Dominguez, Kathryn M.E. & Panthaki, Freyan, 2006. "What defines `news' in foreign exchange markets?," Journal of International Money and Finance, Elsevier, vol. 25(1), pages 168-198, February.
  11. Andersen, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Vega, Clara, 2002. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange," Working Papers 02-16, Duke University, Department of Economics.
  12. Andersen, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Vega, Clara, 2007. "Real-time price discovery in global stock, bond and foreign exchange markets," Journal of International Economics, Elsevier, vol. 73(2), pages 251-277, November.
  13. Bauwens, Luc & Ben Omrane, Walid & Giot, Pierre, 2005. "News announcements, market activity and volatility in the euro/dollar foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 24(7), pages 1108-1125, November.
  14. 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.
  15. 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.
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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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