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News announcements, market activity and volatility in the euro/dollar foreign exchange market

  • BAUWENS, Luc
  • BEN OMRANE, Walid
  • GIOT, Pierre

This paper deals with the impact of nine categories of scheduled and unscheduled news announcements on the Euro/Dollar return volatility. We highlight and analyze the pre-announcement, contemporaneous and postannouncement reactions. Using high-frequency intraday data and within the framework of ARCH-type and realized volatility models, we show that volatility increases in the pre-announcement periods, particularly before scheduled events. Market activity also significantly impacts return volatility as expected by the theoretical literature on order flow.

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File URL: http://dx.doi.org/10.1016/j.jimonfin.2005.08.008
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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number -1787.

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Handle: RePEc:cor:louvrp:-1787
Note: In : Journal of International Money and Finance, 24, 1108-1125, 2005
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  1. Anderson, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Vega, Clara, 2002. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange," Working Papers 02-1, University of Pennsylvania, Wharton School, Weiss Center.
  2. Dacorogna, Michael M. & Muller, Ulrich A. & Nagler, Robert J. & Olsen, Richard B. & Pictet, Olivier V., 1993. "A geographical model for the daily and weekly seasonal volatility in the foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 12(4), pages 413-438, August.
  3. Richard K. Lyons, 1993. "Tests of Microstructural Hypotheses in the Foreign Exchange Market," NBER Working Papers 4471, National Bureau of Economic Research, Inc.
  4. Martin D.D. Evans & Richard K. Lyons, 1999. "Order Flow and Exchange Rate Dynamics," NBER Working Papers 7317, National Bureau of Economic Research, Inc.
  5. Andersen, Torben G & Bollerslev, Tim, 1997. " Heterogeneous Information Arrivals and Return Volatility Dynamics: Uncovering the Long-Run in High Frequency Returns," Journal of Finance, American Finance Association, vol. 52(3), pages 975-1005, July.
  6. Goodhart, C. A. E. & Figliuoli, L., 1991. "Every minute counts in financial markets," Journal of International Money and Finance, Elsevier, vol. 10(1), pages 23-52, March.
  7. Giot Pierre & Laurent Sebastien, 2001. "Modelling daily value-at-risk using realized volatility and arch type models," Research Memorandum 014, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  8. Danielsson, J. & Payne, R., 2002. "Real trading patterns and prices in spot foreign exchange markets," Journal of International Money and Finance, Elsevier, vol. 21(2), pages 203-222, April.
  9. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
  10. Richard K. Lyons, 1991. "Private Beliefs and Information Externalities in the Foreign Exchange Market," NBER Working Papers 3889, National Bureau of Economic Research, Inc.
  11. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Paul Labys, 1999. "Exchange Rate Returns Standardized by Realized Volatility are (Nearly) Gaussian," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-060, New York University, Leonard N. Stern School of Business-.
  12. 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.
  13. Andrew W. Lo & Craig A. MacKinlay, . "An Econometric Analysis of Nonsyschronous-Trading," Rodney L. White Center for Financial Research Working Papers 19-89, Wharton School Rodney L. White Center for Financial Research.
  14. Glosten, Lawrence R. & Milgrom, Paul R., 1985. "Bid, ask and transaction prices in a specialist market with heterogeneously informed traders," Journal of Financial Economics, Elsevier, vol. 14(1), pages 71-100, March.
  15. Richard B. Olsen & Ulrich A. Müller & Michel M. Dacorogna & Olivier V. Pictet & Rakhal R. Davé & Dominique M. Guillaume, 1997. "From the bird's eye to the microscope: A survey of new stylized facts of the intra-daily foreign exchange markets (*)," Finance and Stochastics, Springer, vol. 1(2), pages 95-129.
  16. Rime,D., 2000. "Private or public information in foreign exchange markets? : an empirical analysis," Memorandum 14/2000, Oslo University, Department of Economics.
  17. Robert C. Merton, 1980. "On Estimating the Expected Return on the Market: An Exploratory Investigation," NBER Working Papers 0444, National Bureau of Economic Research, Inc.
  18. Michael Melvin & Xixi Yin, . "Public Information Arrival, Exchange Rate Volatility, and Quote Frequency," Working Papers 96/1, Arizona State University, Department of Economics.
  19. Anat R. Admati, Paul Pfleiderer, 1988. "A Theory of Intraday Patterns: Volume and Price Variability," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 3-40.
  20. 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.
  21. Lyons, Richard K., 1997. "A simultaneous trade model of the foreign exchange hot potato," Journal of International Economics, Elsevier, vol. 42(3-4), pages 275-298, May.
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