Complexity of ECB Communication and Financial Market Trading

Joint Discussion Paper Series in Economics No. 19-2019

47 Pages Posted: 12 Aug 2019 Last revised: 9 Dec 2020

See all articles by Bernd Hayo

Bernd Hayo

University of Marburg - School of Business & Economics

Kai Henseler

University of Marburg - School of Business & Economics

Marc Steffen Rapp

University of Marburg - School of Business & Economics; University of Marburg - Marburg Centre for Institutional Economics (MACIE)

Johannes Zahner

University of Marburg

Date Written: December 4, 2020

Abstract

We empirically examine how complexity of ECB communications affects financial market trading based on high-frequency data from European stock index futures trading. Our sam-ple covers ECB press conferences between January 2009 and December 2017, during which unconventional monetary policy measures (UMPM) substantially increased communication complexity. Analysing the linguistic complexity of the introductory statements and differen-tiating between press conferences with and without UMPM-announcements, we find more complex communication, i.e. high linguistic complexity and UMPM-announcement, is asso-ciated with a lower level of contemporaneous trading activity. Moreover, complex commu-nication leads to a temporal shift in trading activity towards the subsequent Q&A session, which suggests that Q&A sessions facilitate market participants’ information processing. Finally, we document a relatively lower similarity of unconventional monetary policy state-ments and argue that this might explain our findings.

Keywords: ECB, central bank communication, textual analysis, linguistic complexity, readability, financial markets, European stock markets

JEL Classification: D83, E52, E58, G12, G14

Suggested Citation

Hayo, Bernd and Henseler, Kai and Rapp, Marc Steffen and Zahner, Johannes, Complexity of ECB Communication and Financial Market Trading (December 4, 2020). Joint Discussion Paper Series in Economics No. 19-2019 , Available at SSRN: https://ssrn.com/abstract=3434451 or http://dx.doi.org/10.2139/ssrn.3434451

Bernd Hayo (Contact Author)

University of Marburg - School of Business & Economics ( email )

Universitaetsstr. 24
Marburg, D-35032
Germany
++49(0)6421-28-23091 (Phone)
++49(0)6421-28-23193 (Fax)

Kai Henseler

University of Marburg - School of Business & Economics ( email )

Am Plan 2
Marburg, D-35037
Germany

Marc Steffen Rapp

University of Marburg - School of Business & Economics ( email )

Am Plan 2
Marburg, D-35037
Germany

University of Marburg - Marburg Centre for Institutional Economics (MACIE) ( email )

Am Plan
Marburg, 35032
Germany

Johannes Zahner

University of Marburg ( email )

Universitätsstrasse 24
D-35032 Marburg, D-35032
Germany

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