What Defines "News" in Foreign Exchange Markets?

Kathryn Dominguez and Freyan Panthaki

No 11769, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: F31 F37 G15 (search for similar items in EconPapers)
Date: 2005-11
New Economics Papers: this item is included in nep-fin, nep-fmk and nep-ifn
Note: IFM
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Citations: View citations in EconPapers (6)

Published as Journal of International Money and Finance, 25, 2006, 168-198.

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Journal Article: What defines `news' in foreign exchange markets? (2006)
Working Paper: What Defines 'News' in Foreign Exchange Markets (2005)
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