Abstract for:

The Impact of Central Bank Announcements on Asset Prices in Real Time: Testing the Efficiency of the Euribor Futures Market

Carlo  Rosa,  Giovanni  Verga,  December 2006
Paper No' CEPDP0764: | Full paper

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Keywords: market efficiency; central bank communication, news shock, tickby-tick Euribor futures data, event-study analysis.

JEL Classification: E52; E58; G14

Is hard copy/paper copy available? YES - Paper Copy Still In Print.

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This Paper is published under the following series: CEP Discussion Papers

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Abstract:

This paper examines the effect of European Central Bank communication on the price discovery process in the Euribor futures market using a new tick-by-tick dataset. First, we show that two pieces of news systematically hit financial markets on Governing Council meeting days: the ECB policy rate decision and the explanation of its monetary policy stance. Second, we find that the unexpected component of ECB explanations has a significant and sizeable impact on futures prices. This indicates that the ECB has already acquired some credibility: financial markets seem to believe that it does what it says it will do. Finally, our results suggest that the Euribor futures market is semi-strong form informational efficient.