The Intra-Day Impact of Communication on Euro-Dollar Volatility and Jumps

KU Leuven - Center for Economic Studies Discussion Paper No. DPS13.04

37 Pages Posted: 11 Mar 2013

See all articles by Hans Dewachter

Hans Dewachter

Catholic University of Leuven (KUL) - Department of Economics; Erasmus Research Institute of Management (ERIM)

Deniz Erdemlioglu

IESEG School of Management, LEM-CNRS 9221, France

Jean-Yves Gnabo

Facultés Universitaires Notre-Dame de la Paix (FUNDP)

Christelle Lecourt

Facultés Universitaires Notre-Dame de la Paix (FUNDP) - Department of Business Administration

Date Written: March 1, 2013

Abstract

In this paper, we examine the intra-day effects of verbal statements and comments on the FX market uncertainty using two measures: continuous volatility and discontinuous jumps . Focusing on the euro-dollar exchange rate, we provide empirical evidence of how these two sources of uncertainty matter in measuring the short-term reaction of exchange rates to communication events. Talks significantly trigger large jumps or extreme events for approximately an hour after the news release. Continuous volatility starts reacting prior to the news, intensifies around the release time and stays at high levels for several hours. Our results suggest that monetary authorities generally tend to communicate with markets on days when uncertainty is relatively severe, and higher than normal. Disentangling the US and Euro area statements, we also find that abnormal levels of volatility are mostly driven by the communication of the Euro area officials rather than US authorities.

Keywords: Central bank communication, Exchange rate communication, Official statements, High-frequency data, Jump process, Volatility

JEL Classification: E58, F31, G15

Suggested Citation

Dewachter, Hans and Erdemlioglu, Deniz and Gnabo, Jean-Yves and Lecourt, Christelle, The Intra-Day Impact of Communication on Euro-Dollar Volatility and Jumps (March 1, 2013). KU Leuven - Center for Economic Studies Discussion Paper No. DPS13.04, Available at SSRN: https://ssrn.com/abstract=2230346 or http://dx.doi.org/10.2139/ssrn.2230346

Hans Dewachter

Catholic University of Leuven (KUL) - Department of Economics ( email )

Center for Economic Studies
Naamsestraat 69
Leuven, B-3000
Belgium
+0032 16 326859 (Phone)
+0032 16 326796 (Fax)

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Deniz Erdemlioglu (Contact Author)

IESEG School of Management, LEM-CNRS 9221, France ( email )

3 rue de la Digue
Lille, 59000
France

HOME PAGE: http://www.denizerdemlioglu.com

Jean-Yves Gnabo

Facultés Universitaires Notre-Dame de la Paix (FUNDP) ( email )

Rempart de la Vierge, 8
Namur B-5000
Belgium

Christelle Lecourt

Facultés Universitaires Notre-Dame de la Paix (FUNDP) - Department of Business Administration ( email )

Rempart de la Vierge, 8
Namur B-5000
Belgium
+32 81 72 53 02 (Phone)

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