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CEP discussion paper
The Impact of Central Bank Announcements on Asset Prices in Real Time: Testing the Efficiency of the Euribor Futures Market
Carlo Rosa and Giovanni Verga December 2006
Paper No' CEPDP0764:
Full Paper (pdf)

JEL Classification: E52; E58; G14

Tags: market efficiency; central bank communication; news shock; tickby-tick euribor futures data; event-study analysis.

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.