Public news announcements and quoting activity in the Euro/Dollar foreign exchange market

Authors:
Walid Ben Omrane;Andréas Heinen
Affiliations:
Department of Finance, ESG, University of Quebec in Montreal, Canada;Departamento de Estadística, Universidad Carlos III de Madrid. 126 Calle de Madrid, 28903 Getafe, Madrid, Spain
Venue:
Computational Statistics & Data Analysis
Year:
2010

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Abstract

The effect of public news announcements on dealers' quoting activity is analyzed with the multivariate double autoregressive conditional Poisson model. Quoting activity is measured by the frequency of price revisions in the Euro/Dollar foreign exchange market. The multivariate double autoregressive conditional Poisson model is designed for time series of count data. It is based on the double Poisson distribution, which can be both over- and underdispersed. The main findings are first a significant interaction between dealers' quoting activity, which confirms hot potato trading. Second, news announcements have a different impact on the quoting activity of different banks. Third, impulse-response functions to news announcements show the dynamic nature of the reaction to these news releases.