Investor reactions to news: an analysis of the euro-dollar exchange rate
This paper investigates whether the fall in the euro-dollar exchange rate in the course of 2000 can be partly attributed to asymmetric reactions by investors to economic and political news. We have studied the daily euro-dollar exchange rate changes recorded from 1 April 2000 to the first co-ordinated exchange rate intervention on 22 September 2000, regressing these changes on economic and political news items about the US and the euro area. The paper suggests that investors' response to news about the US differs from that to news about the euro area. Specifically, the exchange rate did not respond to economic news about the euro area, whereas it did to US economic news. There are indications that the opposite holds true in respect of political news. Moreover, the paper shows a difference in the magnitude in the reaction to 'good' and 'bad' news items, which may suggest some additional news filtering by investors (cognitive dissonance). These asymmetric reaction pattern may explain at least partly why, contrary to what exchange rate theory would predict, the recovery of the economy in the euro area in the course of 2000 was not followed by an appreciation of the euro vis-�-vis the dollar. Importantly, given the relevance of political euro area news to investors, politicians and central bankers face the challenge to convince market participants of the viability of EMU.
|Date of creation:||Jul 2001|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.dnb.nl/en/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Soderlind, Paul & Svensson, Lars, 1997.
"New techniques to extract market expectations from financial instruments,"
Journal of Monetary Economics,
Elsevier, vol. 40(2), pages 383-429, October.
- Söderlind, Paul & Svensson, Lars E O, 1997. "New Techniques to Extract Market Expectations from Financial Instruments," CEPR Discussion Papers 1556, C.E.P.R. Discussion Papers.
- Soderlind, P & Svensson, L-E-O, 1996. "New Techniques to Extract Market Expectations from Financial Instruments," Papers 621, Stockholm - International Economic Studies.
- Paul Soderlind & Lars E. O. Svensson, 1997. "New Techniques to Extract Market Expectations from Financial Instruments," NBER Working Papers 5877, National Bureau of Economic Research, Inc.
- Söderlind, Paul & Svensson, Lars E.O., 1997. "New Techniques to Extract Market Expectations from Financial Instruments," Seminar Papers 621, Stockholm University, Institute for International Economic Studies.
- Söderlind, Paul & Svensson, Lars E.O., 1996. "New Techniques to Extract Market expectations from Financial Instruments," SSE/EFI Working Paper Series in Economics and Finance 142, Stockholm School of Economics.
- Nicholas Barberis & Andrei Shleifer & Robert W. Vishny, 1997.
"A Model of Investor Sentiment,"
NBER Working Papers
5926, National Bureau of Economic Research, Inc.
- Kaminsky, Graciela L. & Schmukler, Sergio L., 1999.
"What triggers market jitters? A chronicle of the Asian crisis,"
Policy Research Working Paper Series
2094, The World Bank.
- Kaminsky, Graciela L. & Schmukler, Sergio L., 1999. "What triggers market jitters?: A chronicle of the Asian crisis," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 537-560, August.
- Graciela L. Kaminsky & Sergio L. Schmukler, 1999. "What triggers market jitters: a chronicle of the Asian crisis," International Finance Discussion Papers 634, Board of Governors of the Federal Reserve System (U.S.).
- Patrick Lünnemann, 2001. "Stock market valuation of old and new economy firms," BCL working papers 2, Central Bank of Luxembourg.
- Mishkin, Frederic S., 1990.
"What does the term structure tell us about future inflation?,"
Journal of Monetary Economics,
Elsevier, vol. 25(1), pages 77-95, January.
- Mishkin, F.S., 1988. "What Does The Term Structure Tell Us About Future Inflation?," Papers fb-_88-29, Columbia - Graduate School of Business.
- Frederic S. Mishkin, 1988. "What Does the Term Structure Tell Us About Future Inflation?," NBER Working Papers 2626, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:dnb:mebser:2001-6. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Rob Vet)
If references are entirely missing, you can add them using this form.