Research Discussion Papers, Bank of Finland
No 24/2004:
The impact of macroeconomic news on exchange rate volatility
Helinä Laakkonen ()
Abstract: This study investigates the impact of new information on
the volatility of exchange rates. The impact of scheduled US and European
macroeconomic news on the volatility of USD/EUR 5-minute returns was tested
by using the Flexible Fourier Form method. The results were consistent with
earlier studies. Macroeconomic news increased volatility significantly, and
news on the United States was the most important. The much-tested
hypothesis of bad news having a greater impact on volatility was
re-confirmed in this study. The announcements were also divided into two
categories, the first containing the news that gave conflicting information
on the state of the economy (bad and good news at the same time) and the
other containing the news that was consistent (where either good or bad
news was announced). Conflicting news was found to increase volatility
significantly more than consistent news. The impact of 'no-surprise' news
was also tested. Even news the forecast of which was equal to an
announcement seemed to increase volatility.
Keywords: Exchange rates; microstructure theory; volatility; news; (follow links to similar papers)
JEL-Codes: C12; C14; C22; G14; (follow links to similar papers)
46 pages, October 13, 2004
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