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Is there any common knowledge news in the Euro/Dollar market?

  • Ben Omrane, Walid
  • Heinen, Andréas

This paper analyzes the effect of nine categories of news announcements on the quoting activity of individual foreign exchange (FX) dealers on the Euro/Dollar exchange rate from May to October 2001. We use the double autoregressive conditional Poisson model (DACP), which is designed for time series of count data, which can be both under- or overdispersed. We find that dealers' quoting activity reacts differently to the same announcements, some increasing their activity, whilst others decrease it in response to the same news. Based on the taxonomy of Evans [Evans, M. (2002), Fx trading and exchange rate dynamics. Journal of Finance 57(6), 2405-2447.], we classify our news categories in two groups: common knowledge (CK) and non-common knowledge (NCK) news, according to their effects on quoting activity and price changes. Finally we show that scheduled news announcements are NCK news, and there is no evidence for the existence of CK news amongst our announcements, which means that dealers hardly get a consensus in interpreting the news content.

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Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 18 (2009)
Issue (Month): 4 (October)
Pages: 656-670

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Handle: RePEc:eee:reveco:v:18:y:2009:i:4:p:656-670
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620165

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  1. Martin D. D. Evans & Richard K. Lyons, 2003. "How is Macro News Transmitted to Exchange Rates?," NBER Working Papers 9433, National Bureau of Economic Research, Inc.
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  4. BAUWENS, Luc & BEN OMRANE, Walid & GIOT, Pierre, 2003. "News announcements, market activity and volatility in the Euro/Dollar foreign exchange market," CORE Discussion Papers 2003029, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  7. Peiers, Bettina, 1997. " Informed Traders, Intervention, and Price Leadership: A Deeper View of the Microstructure of the Foreign Exchange Market," Journal of Finance, American Finance Association, vol. 52(4), pages 1589-1614, September.
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  15. 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.
  16. Martin Evans, 2000. "FX trading and Exchange Rate Dynamics," Working Papers gueconwpa~00-00-04, Georgetown University, Department of Economics.
  17. 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.
  18. Heinen, Andreas, 2003. "Modelling Time Series Count Data: An Autoregressive Conditional Poisson Model," MPRA Paper 8113, University Library of Munich, Germany.
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