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The impact of macroeconomic news on exchange rate volatility

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  • Laakkonen, Helinä

Abstract

This study investigates the impact of new information on the volatility of exchange rates.The impact of scheduled US and European macroeconomic news on the volatility of USD/EUR 5-minute returns was tested by using the Flexible Fourier Form method.The results were consistent with earlier studies.Macroeconomic news increased volatility significantly, and news on the United States was the most important.The much-tested hypothesis of bad news having a greater impact on volatility was re-confirmed in this study.The announcements were also divided into two categories, the first containing the news that gave conflicting information on the state of the economy (bad and good news at the same time) and the other containing the news that was consistent (where either good or bad news was announced).Conflicting news was found to increase volatility significantly more than consistent news.The impact of 'no-surprise' news was also tested.Even news the forecast of which was equal to an announcement seemed to increase volatility.

Suggested Citation

  • Laakkonen, Helinä, 2004. "The impact of macroeconomic news on exchange rate volatility," Bank of Finland Research Discussion Papers 24/2004, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:rdp2004_024
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    More about this item

    Keywords

    Exchange rates; microstructure theory; volatility; news;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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