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Macroeconomic News and Exchange Rate Volatility: Evidence of Unstable Effect

In: HANDBOOK OF GLOBAL FINANCIAL MARKETS Transformations, Dependence, and Risk Spillovers

Author

Listed:
  • Walid Ben Omrane
  • Robert Welch
  • Xinyao Zhou

Abstract

This chapter examines the effects of macroeconomic news on foreign exchange return and volatility across sequential regimes. Although the stable link between macroeconomic news announcements and exchange rates has been well documented in previous literature, this linkage could be unstable. Using a breakpoint regression model, a broad set of macroeconomic news announcements, and high-frequency Euro/Dollar foreign data from November 1, 2004 to March 31, 2014, we find macroeconomic news has unstable effects on Eurodollar returns and volatility across estimated regimes. Most news events exhibit variations in magnitude and/or switch signs between regimes. US news causes more instability than Euro news.

Suggested Citation

  • Walid Ben Omrane & Robert Welch & Xinyao Zhou, 2019. "Macroeconomic News and Exchange Rate Volatility: Evidence of Unstable Effect," World Scientific Book Chapters, in: Sabri Boubaker & Duc Khuong Nguyen (ed.), HANDBOOK OF GLOBAL FINANCIAL MARKETS Transformations, Dependence, and Risk Spillovers, chapter 7, pages 167-198, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813236653_0007
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    More about this item

    Keywords

    Market Integration; Risk Management; Risk Assessment; Financial Uncertainty; Volatility; Financial Markets; Financial Development; Country Risks; Sovereign Debt Markets;
    All these keywords.

    JEL classification:

    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications

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