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What Defines "News" in Foreign Exchange Markets?

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  • Kathryn Dominguez
  • Freyan Panthaki

Abstract

This paper examines whether the traditional sets of macro surprises, that most of the literature considers, are the only sorts of news that can explain exchange rate movements. We examine the intra-daily influence of a broad set of news reports, including variables which are not typically considered "fundamentals" in the context of standard models of exchange rate determination, and ask whether they too help predict exchange rate behavior. We also examine whether "news" not only impacts exchange rates directly, but also influences exchange rates via order flow (signed trade volume). Our results indicate that along with the standard fundamentals, both non-fundamental news and order flow matter, suggesting that future models of exchange rate determination ought to include all three types of explanatory variables.

Suggested Citation

  • Kathryn Dominguez & Freyan Panthaki, 2005. "What Defines "News" in Foreign Exchange Markets?," NBER Working Papers 11769, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:11769
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    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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