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Complexity of ECB Communication and Financial Market Trading

Author

Listed:
  • Bernd Hayo

    (Philipps-Universitaet Marburg)

  • Kai Henseler

    (Philipps-Universitaet Marburg)

  • Marc Steffen Rapp

    () (Philipps-Universitaet Marburg)

Abstract

We examine how the verbal complexity of ECB communications affects financial market trading based on high-frequency data from European stock index futures trading. Studying the 34 events between May 2009 and June 2017, during which the ECB Governing Council press conferences covered unconventional monetary policy measures, and using the Flesch-Kincaid Grade Level to measure the verbal complexity of introductory statements to the press conferences, we find that more complex communications are associated with a lower level of contemporaneous trading. Increasing complexity of introductory statements leads to a temporal shift of trading activity towards the subsequent Q&A session, which suggests that Q&A sessions facilitate market participants’ information processing.

Suggested Citation

  • Bernd Hayo & Kai Henseler & Marc Steffen Rapp, 2019. "Complexity of ECB Communication and Financial Market Trading," MAGKS Papers on Economics 201919, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  • Handle: RePEc:mar:magkse:201919
    as

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    File URL: http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/paper_2019/19-2019_hayo.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    ECB; central bank communication; textual analysis; linguistic complexity; readability; financial markets; European stock markets;

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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