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The Impact of Central Bank Announcements on Asset Prices in Real Time: Testing the Efficiency of the Euribor Futures Market

  • Carlo Rosa
  • Giovanni Verga

This paper examines the effect of European Central Bank communication on the price discovery process in the Euribor futures market using a new tick-by-tick dataset. First, we show that two pieces of news systematically hit financial markets on Governing Council meeting days: the ECB policy rate decision and the explanation of its monetary policy stance. Second, we find that the unexpected component of ECB explanations has a significant and sizeable impact on futures prices. This indicates that the ECB has already acquired some credibility: financial markets seem to believe that it does what it says it will do. Finally, our results suggest that the Euribor futures market is semi-strong form informational efficient.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0764.

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Date of creation: Dec 2006
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Handle: RePEc:cep:cepdps:dp0764
Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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