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

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: 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