Impact of news announcements on the foreign exchange implied volatility

Marshall, Andrew and Musyev, T and Pinto, Helena and Tang, Leilei (2012) Impact of news announcements on the foreign exchange implied volatility. Journal of International Financial Markets Institutions and Money, 22 (4). pp. 719-737. ISSN 1042-4431 (https://doi.org/10.1016/j.intfin.2012.04.006)

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Abstract

This paper investigates the impact of news announcements on foreign exchange (FX) implied volatility (IV) for four major FX rates for the 12-year period 1998–2009. The news announcements examined are 16 scheduled US macroeconomic announcements, the release of the minutes of the Federal Open Market Committee (FOMC), official US interest rate changes and Bank of Japan (BOJ) interventions. Our results show some of these announcements impact on FX IV, which is important to market participants for trading and risk management purposes. We find for the US scheduled macroeconomic news announcements FX IV tends to drop on the announcement day, but there are no significant changes in FX IV levels pre- and post-announcements, larger announcement surprises can in some cases influence FX IV differently than smaller surprises, and the impact of positive news is generally not different from the impact of negative news. For the other three announcements, the only impact on FX IV is for BOJ interventions indicating that these interventions result in upward revisions in expected future market uncertainty.

ORCID iDs

Marshall, Andrew ORCID logoORCID: https://orcid.org/0000-0001-7081-1296, Musyev, T, Pinto, Helena and Tang, Leilei ORCID logoORCID: https://orcid.org/0000-0003-0422-9892;
CORE (COnnecting REpositories)