Complexity of ECB Communication and Financial Market Trading

Joint Discussion Paper Series in Economics No. 19-2019

42 Pages Posted: 12 Aug 2019

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)

Date Written: August 8, 2019

Abstract

We examine how the verbal complexity of ECB communications affects financial market trading based on high-frequency data from European stock index futures trading. Studying the 34 events between May 2009 and June 2017, during which the ECB Governing Council press conferences covered unconventional monetary policy measures, and using the Flesch-Kincaid Grade Level to measure the verbal complexity of introductory statements to the press conferences, we find that more complex communications are associated with a lower level of contemporaneous trading. Increasing complexity of introductory statements leads to a temporal shift of trading activity towards the subsequent Q&A session, which suggests that Q&A sessions facilitate market participants’ information processing.

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, Complexity of ECB Communication and Financial Market Trading (August 8, 2019). 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

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