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Real-time price discovery via verbal communication: Method and application to Fedspeak

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  • Gómez-Cram, Roberto
  • Grotteria, Marco

Abstract

We study the price discovery process on FOMC days. For several asset classes, we find that price movements around the post-meeting statement release are strong predictors of price movements around the subsequent press conference. The correlation is 58% for medium-term Eurodollar futures and 44% for the S&P500 index. We then time-stamp the words pronounced in press conference videos and align these words with high-frequency financial data. Minutes in which the chairman discusses changes in the newly issued policy statement underlie the positive correlation. We discuss potential explanations and consider the implications of our findings for asset pricing and monetary economics.

Suggested Citation

  • Gómez-Cram, Roberto & Grotteria, Marco, 2022. "Real-time price discovery via verbal communication: Method and application to Fedspeak," Journal of Financial Economics, Elsevier, vol. 143(3), pages 993-1025.
    • Handle: RePEc:eee:jfinec:v:143:y:2022:i:3:p:993-1025
    DOI: 10.1016/j.jfineco.2021.12.004
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    More about this item

    Keywords

    Price discovery; Monetary policy; Federal reserve; FOMC; Video data;
    All these keywords.

    JEL classification:

    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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