The pitch rather than the pit: investor inattention during FIFA world cup matches

At the 2010 FIFA World Cup in South Africa, many soccer matches were played during stock market trading hours, providing us with a natural experiment to analyze fluctuations in investor attention. Using minute-by-minute trading data for fifteen international stock exchanges, we present three key findings. First, when the national team was playing, the number of trades dropped by 45%, while volumes were 55% lower. Second, market activity was influenced by match events. For instance, a goal caused an additional drop in trading activity by 5%. The magnitude of this reduction resembles what is observed during lunchtime, and as such might not be indicative for shifts in attention. However, our third finding is that the comovement between national and global stock market returns decreased by over 20% during World Cup matches, whereas no comparable decoupling can be found during lunchtime. We conclude that stock markets were following developments on the soccer pitch rather than in the trading pit, leading to a changed price formation process. JEL Classification: G12, G14, G15.Investor inattention, stock markets, trading volume, high-frequency data, soccer.

Logic and model checking for hidden Markov models

The branching-time temporal logic PCTL* has been introduced to specify quantitative properties over probability systems, such as discrete-time Markov chains. Until now, however, no logics have been defined to specify properties over hidden Markov models (HMMs). In HMMs the states are hidden, and the hidden processes produce a sequence of observations. In this paper we extend the logic PCTL* to POCTL*. With our logic one can state properties such as "there is at least a 90 percent probability that the model produces a given sequence of observations" over HMMs. Subsequently, we give model checking algorithms for POCTL* over HMMs

Stuttering equivalence is too slow!

Groote and Wijs recently described an algorithm for deciding stuttering equivalence and branching bisimulation equivalence, acclaimed to run in $\mathcal{O}(m \log n)$ time. Unfortunately, the algorithm does not always meet the acclaimed running time. In this paper, we present two counterexamples where the algorithms uses $\Omega(md)$ time. A third example shows that the correction is not trivial. In order to analyse the problem we present pseudocode of the algorithm, and indicate the time that can be spent on each part of the algorithm in order to meet the desired bound. We also propose fixes to the algorithm such that it indeed runs in $\mathcal{O}(m \log n)$ time.Comment: 11 page

The Importance of Being Vigilant: Has ECB Communication Influenced Euro Area Inflation Expectations?

Using daily data on inflation-indexed bonds, we find evidence of a negative relationship between ECB communication regarding risks to price stability - measured on the basis of the frequency and strength of the keyword ‘vigilance’ - and changes in euro area break-even inflation. However, this result is only found for the second half of 2005. At that time, the start of a tightening of ECB monetary policy was increasingly likely. This suggests that communication should be closely in line with policy actions before it can be effective. Still, we also find that the economic significance of this type of communication has been small.central bank communication, ECB, inflation expectations

Is a word to the wise indeed enough? ECB statements and the predictability of interest rate decisions

We show that comments by euro area central bankers contain information on future ECB interest rate decisions, but that the comments mainly reflect recent developments in macroeconomic variables. Furthermore, models using only communication variables are outperformed by straightforward Taylor rule models. During the first years of the European Economic and Monetary Union, comments by ECB Executive Board members and high-level Bundesbank policy-makers were more informative than comments by national central bank presidents. We also find that differences of opinion were informative when they concerned the outlook for economic growth. Finally, our results suggest that the ECB used communication especially to signal interest rate increasescentral bank communication, ECB, interest rate decisions

Statements of ECB Officials and their Effect on the Level and Volatility of the Euro-Dollar Exchange Rate

This paper studies the reaction of the mean and volatility of the euro-dollar exchange rate to statements of ECB officials during the first years of EMU. We focus on statements on monetary policy and the (potential) strength of the euro. We find that the Bundesbank has dominated the news coverage. We conclude that ECB statements have mainly influenced volatility. In some cases there are effects of statements on the level of the euro-dollar rate. Efforts to ‘talk up’ the euro have not been successful. There is also evidence of asymmetric reactions to news.ECB, euro, foreign exchange, news approach

Look Who’s Talking: ECB Communication during the First Years of EMU

This paper studies ECB and Bundesbank communication on monetary policy during the first years of the European Economic and Monetary Union. We study whether statements by different (groups of) central bankers have been contradictory and whether differences have diminished over time. We find that statements on the interest rate, inflation and economic growth have indeed been contradictory. Furthermore, national central banks continue to dominate communication on monetary policy. Finally, only the ECB Executive Board has observed radio silence before ECB Governing Council meetings. A positive conclusion is that, over time, interest rate statements have become less contradictory.central bank communication, European Central Bank, Bundesbank

A probabilistic extension of UML statecharts: specification and verification

This paper is the extended technical report that corresponds to a published paper [14]. This paper introduces means to specify system randomness within UML statecharts, and to verify probabilistic temporal properties over such enhanced statecharts which we call probabilistic UML statecharts. To achieve this, we develop a general recipe to extend a statechart semantics with discrete probability distributions, resulting in Markov decision processes as semantic models. We apply this recipe to the requirements-level UML semantics of [8]. Properties of interest for probabilistic statecharts are expressed in PCTL, a probabilistic variant of CTL for processes that exhibit both non-determinism and probabilities. Verification is performed using the model checker Prism. A model checking example shows the feasibility of the suggested approach

Does ECB Communication Help in Predicting its Interest Rate Decisions?

We examine the usefulness of communication by the European Central Bank for predicting its interest rate decisions. We use ordered probit models based on the Taylor rule which we estimate using statements by ECB officials as well as macroeconomic variables. Statements by ECB officials on the main refinancing rate and future inflation are significantly related to ECB decisions. However, an out-of-sample evaluation shows that communication-based models do not outperform models based on macroeconomic data in predicting decisions. Both sets of models only accurately predict decisions to leave interest rates unchanged.ECB communication, interest rate decision, Taylor rule, ordered probit models