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Monetary Policy Announcement and Algorithmic News Trading in the Foreign Exchange Market

Author

Listed:
  • Keiichi Goshima

    (Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: keiichi.goshima@boj.or.jp))

  • Yusuke Kumano

    (Deputy Director and Economist, Institute for Monetary and Economic Studies (currently, Research and Statistics Department), Bank of Japan (E-mail: yuusuke.kumano@boj.or.jp))

Abstract

We analyze the effects of algorithmic news trading (ANT) in the foreign exchange market around the time that the Bank of Japan makes public announcements of its policy decisions. To observe the activity level of ANT, we propose a novel measure based on a web access record to a central bank's webpage. We find that our proposed measure appropriately captures the activity level of ANT. Employing an event study analysis and a VAR analysis, we find that ANT increases market volatility immediately after the monetary policy announcements, and that ANT activity indirectly decreases market liquidity through increasing volatility. In addition, we suggest that ANT trades based on changes of texts on monetary policy announcements.

Suggested Citation

  • Keiichi Goshima & Yusuke Kumano, 2018. "Monetary Policy Announcement and Algorithmic News Trading in the Foreign Exchange Market," IMES Discussion Paper Series 18-E-13, Institute for Monetary and Economic Studies, Bank of Japan.
  • Handle: RePEc:ime:imedps:18-e-13
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    References listed on IDEAS

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    More about this item

    Keywords

    Algorithmic trading; Monetary policy; High frequency data; Foreign exchange market; News trading; Market microstructure; Web access record;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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