Real-time Price Discovery via Verbal Communication: Method and Application to Fedspeak

71 Pages Posted: 23 Jun 2020 Last revised: 5 Jan 2022

Date Written: March 6, 2021

Abstract

We study the price discovery process during FOMC days. For several asset classes we find that price movements around the post-meeting statement release are strong predictors of price movements around the subsequent press conference. The correlation is as high as 58% for medium-term Eurodollar futures and 44% for the S&P 500 index. We then use press-conference videos, timestamp the words pronounced, and align them with high-frequency financial data. Minutes in which the Chairman discusses changes in the newly-issued policy statement lie behind the positive correlation. We discuss several potential explanations and consider the implications of our findings for asset pricing and monetary economics.

Keywords: Price Discovery, Monetary Policy, Federal Reserve, FOMC, Video Data

JEL Classification: C55, E40, E52, E58

Suggested Citation

Gomez Cram, Roberto and Grotteria, Marco, Real-time Price Discovery via Verbal Communication: Method and Application to Fedspeak (March 6, 2021). Journal of Financial Economics (JFE), Vol. 143, No. 3, 2022, Proceedings of Paris December 2020 Finance Meeting EUROFIDAI - ESSEC, Available at SSRN: https://ssrn.com/abstract=3613702 or http://dx.doi.org/10.2139/ssrn.3613702

Roberto Gomez Cram

London Business School ( email )

Regent's Park, London NW1 4SA
Regent's Park
London, London NW1 4SA
United Kingdom

Marco Grotteria (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

HOME PAGE: http://sites.google.com/site/marcogrotteria/home

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