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The Relevance of Accuracy for the Impact of Macroeconomic News on Volatility

Listed author(s):
  • Laakkonen, Helinä
  • Lanne, Markku

We study whether the accuracy of news announcements matters for the impact of news on exchange rate volatility. We use high-frequency EUR/USD returns and releases of 20 US macroeconomic indicators, and measure the precision of news in three different ways. When the precision is defined by the size of the first revision of the previous month's figure, we find that precise news increases volatility significantly more than imprecise news. Also, news on indicators that are in general more precise increase volatility more than news on typically imprecise indicators. Finally, we use real time data to measure the 'true' precision of news and find that the size of the first revision of the previous month's figure is a reasonable signal of 'true' precision.

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File URL: https://mpra.ub.uni-muenchen.de/23718/1/MPRA_paper_23718.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 23718.

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Date of creation: May 2009
Handle: RePEc:pra:mprapa:23718
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  1. Alan B. Krueger & Kenneth N. Fortson, 2003. "Do Markets Respond More to More Reliable Labor Market Data? A Test of Market Rationality," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 931-957, 06.
  2. Dominguez, Kathryn M.E. & Panthaki, Freyan, 2006. "What defines `news' in foreign exchange markets?," Journal of International Money and Finance, Elsevier, vol. 25(1), pages 168-198, February.
  3. Bauwens, Luc & Ben Omrane, Walid & Giot, Pierre, 2005. "News announcements, market activity and volatility in the euro/dollar foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 24(7), pages 1108-1125, November.
  4. Hautsch, Nikolaus & Hess, Dieter, 2007. "Bayesian Learning in Financial Markets: Testing for the Relevance of Information Precision in Price Discovery," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(01), pages 189-208, March.
  5. Helinä Laakkonen, 2007. "The Impact of Macroeconomic News on Exchange Rate Volatility," Finnish Economic Papers, Finnish Economic Association, vol. 20(1), pages 23-40, Spring.
  6. Swanson, Norman R. & van Dijk, Dick, 2006. "Are Statistical Reporting Agencies Getting It Right? Data Rationality and Business Cycle Asymmetry," Journal of Business & Economic Statistics, American Statistical Association, vol. 24, pages 24-42, January.
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  8. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2003. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange," American Economic Review, American Economic Association, vol. 93(1), pages 38-62, March.
  9. 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.
  10. Farmer, J. Doyne & Joshi, Shareen, 2002. "The price dynamics of common trading strategies," Journal of Economic Behavior & Organization, Elsevier, vol. 49(2), pages 149-171, October.
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  12. repec:hrv:faseco:30747159 is not listed on IDEAS
  13. Damodaran, Aswath, 1985. "Economic Events, Information Structure, and the Return-Generating Process," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 20(04), pages 423-434, December.
  14. Andersen, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Vega, Clara, 2007. "Real-time price discovery in global stock, bond and foreign exchange markets," Journal of International Economics, Elsevier, vol. 73(2), pages 251-277, November.
  15. Torben G. Andersen & Tim Bollerslev, 1998. "Deutsche Mark-Dollar Volatility: Intraday Activity Patterns, Macroeconomic Announcements, and Longer Run Dependencies," Journal of Finance, American Finance Association, vol. 53(1), pages 219-265, 02.
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