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

57 Pages Posted: 23 Jun 2020 Last revised: 2 Nov 2020

Date Written: November 2, 2020

Abstract

We advance the hypothesis and establish empirically that investors’ expectations adjust slowly to Central Banks’ messages. From the videos of post-FOMC-meeting press conferences, we extract the words, and timestamp them at the millisecond. We align the transcripts with high-frequency data for several financial assets to provide granular evidence on the investors’ expectations formation process. When the Chairman discusses the changes between current and previous policy statement, price volatility and trading volume spike dramatically, and prices move in the same direction as they did around the statement release. Our approach allows us to quantify in monetary terms the value of information rigidity.

Keywords: Monetary Policy, Federal Reserve, FOMC, Information rigidity, 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 (November 2, 2020). 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://https://sites.google.com/site/marcogrotteria/

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