What Defines 'News' in Foreign Exchange Markets

This paper examines whether the traditional sets of macro surprises, that most of the literature considers, are the only sorts of news that can explain exchange rate movements. We examine the intra-daily influence of a broad set of news reports, including variables which are not typically considered "fundamentals" in the context of standard models of exchange rate determination, and ask whether they too help predict exchange rate behavior. We also examine whether "news" not only impacts exchange rates directly, but also influences exchange rates via order flow (signed trade volume). Our results indicate that along with the standard fundamentals, both non-fundamental news and order flow matter, suggesting that future models of exchange rate determination ought to include all three types of explanatory variables.

What Defines "News" in Foreign Exchange Markets?

This paper examines whether the traditional sets of macro surprises, that most of the literature considers, are the only sorts of news that can explain exchange rate movements. We examine the intra-daily influence of a broad set of news reports, including variables which are not typically considered "fundamentals" in the context of standard models of exchange rate determination, and ask whether they too help predict exchange rate behavior. We also examine whether "news" not only impacts exchange rates directly, but also influences exchange rates via order flow (signed trade volume). Our results indicate that along with the standard fundamentals, both non-fundamental news and order flow matter, suggesting that future models of exchange rate determination ought to include all three types of explanatory variables.

The Influence of Actual and Unrequited Interventions

Intervention operations are used by governments to manage their exchange rates but officials rarely confirm their presence in the market, leading inevitably to erroneous reports in the financial press. There are also reports of what we term, unrequited interventions, interventions that the market expects but do not materialize. In this paper we examine the effects of various types of intervention news on intra-day exchange rate behavior. We find that unrequited interventions have a statistically significant influence on returns, volatility and order flow, suggesting that the expectation of intervention, even when governments do not intervene, can affect currency values.

The Influence of Actual and Unrequited Interventions

Intervention operations are used by governments to manage their exchange rates but officials rarely confirm their presence in the market, leading inevitably to erroneous reports in the financial press. There are also reports of what we term, unrequited interventions, interventions that the market expects but do not materialize. In this paper we examine the effects of various types of intervention news on intra-day exchange rate behavior. We find that unrequited interventions have a statistically significant influence on returns, volatility and order flow, suggesting that the expectation of intervention, even when governments do not intervene, can affect currency values.

Foreign exchange market reactions to news: A microstructure analysis of returns, volatility, and order flow from the Reuters D2000-2 electronic trading system.

The research in this thesis examines the effect of different kinds of news on high frequency order flow, exchange rate returns and volatility. The first chapter studies the impact of different aspects of central bank interventions (direction, size, frequency, timing), and news about these interventions, on exchange rate volatility. Briefly, we find that interventions decrease volatility contemporaneously but the effect is reversed in two hours. This effect is symmetric with respect to the direction of the intervention. The size and frequency of interventions are usually positively correlated with volatility. 9am and 2pm interventions have different effects on volatility, confirming that when the central bank chooses to intervene is important. The second chapter examines the intra-daily influence of a broad set of news reports, including variables which are not typically considered "fundamentals" in the context of standard models of exchange rate determination, and asks whether they too help predict exchange rate behavior. We also examine whether "news" not only impacts exchange rates directly, but also influences exchange rates via order flow (signed trade volume). We find that along with the standard fundamentals, both non-fundamental news and order flow matter. The last chapter examines intra-day foreign exchange market reactions to various types of intervention news (reported actual interventions, falsely reported interventions, oral interventions and unrequited interventions). Research has found that these operations can, under certain circumstances, effectively influence the level and volatility of exchange rates. Using Reuters' time-stamped newswire reports we are able to match the timing of intervention news to movements in intra-day exchange rates. Overall, the results indicate that along with actual interventions, other kinds of intervention news (including denials of intervention and unrequited interventions) and order flow matter. The results from these studies suggest that future models of exchange rate determination ought to include a broader concept of price relevant "news"

What Defines "News" in Foreign Exchange Markets?

This paper examines whether the traditional sets of macro surprises, that most of the literature considers, are the only sorts of news that can explain exchange rate movements. We examine the intra-daily influence of a broad set of news reports, including variables which are not typically considered “fundamentals” in the context of standard models of exchange rate determination, and ask whether they too help predict exchange rate behavior. We also examine whether “news” not only impacts exchange rates directly, but also influences exchange rates via order flow (signed trade volume). Our results indicate that along with the standard fundamentals, both non-fundamental news and order flow matter, suggesting that future models of exchange rate determination ought to include all three types of explanatory variables.http://deepblue.lib.umich.edu/bitstream/2027.42/21611/1/IPC-working-paper-002-dominguez.pd

Exchange rate volatility and central bank interventions

This paper studies the impact of Swiss National Bank interventions, and news about these interventions, on the intraday volatility of the Swiss franc - U.S. dollar exchange rate. It extends the existing literature by characterising the the impact of different aspects of central bank interventions, like direction, size, frequency and time of intervention, on exchange rate volatility. Briefly, the paper finds that the effect of intervention on volatility varies depending on how volatility is defined. Interventions decrease volatility contemporaneously but this effect is reversed in the two hours afterwards. This relationship is symmetric with respect to the direction of the intervention, whether they be buy and sell interventions or with-the-wind and against-the-wind interventions. Analysis of the volatility and intervention size relationship finds that as we move from small to large interventions, the larger interventions tend to increase volatility relative to small interventions. The frequency of interventions has a small but positive impact on volatility, and this is underscored when the analysis is done by splitting the sample into low, average and high frequency interventions. The interaction between intervention size and intervention frequency results in a small positive effect on volatility for the squared return measure and the absolute return measure and a negative effect for both the realised volatility measures this effect is negative. As before the effect of the timing of the intervention varies with the volatility measure. The relationship is different for interventions at different times of the day. For the two realised volatility measures 9am interventions reduce volatility while for the other two measures the significant coefficients have an overall positive effect increasing volatility. 2pm interventions decrease volatility for both the squared return measures but increase volatility for both the absolute return measures. Reuters reports of sell interventions have a significant and lagged negative effect on volatility for the squared return measure and both the absolute return measures