The Relevance of Accuracy for the Impact of Macroeconomic News on Volatility

Laakkonen, Helinä and Lanne, Markku (2009): The Relevance of Accuracy for the Impact of Macroeconomic News on Volatility.

Abstract

We study whether the accuracy of news announcements matters for the impact of news on exchange rate volatility. We use high-frequency EUR/USD returns and releases of 20 US macroeconomic indicators, and measure the precision of news in three different ways. When the precision is defined by the size of the first revision of the previous month's figure, we find that precise news increases volatility significantly more than imprecise news. Also, news on indicators that are in general more precise increase volatility more than news on typically imprecise indicators. Finally, we use real time data to measure the 'true' precision of news and find that the size of the first revision of the previous month's figure is a reasonable signal of 'true' precision.

• Item Type: MPRA Paper
• Language: English
• Keywords: volatility; exchange rates; macroeconomic announcements; high-frequency data
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; G - Financial Economics > G0 - General > G00 - General; F - International Economics > F3 - International Finance > F31 - Foreign Exchange

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