TY - JOUR
T1 - Understanding the impact of monetary policy announcements
T2 - The importance of language and surprises
AU - Smales, L. A.
AU - Apergis, N.
PY - 2017/7/1
Y1 - 2017/7/1
N2 - Monetary policy announcements have a significant impact on financial market liquidity. This study provides a novel perspective on the factors driving this relationship in the market for 10-year Treasury note futures: Target rate surprises and the complexity of the monetary policy statement language are important determinants. Differences of opinion resulting from interpretation of complex language appear to result in more trading volume despite relatively low levels of liquidity (a negative liquidity-volume relationship), while large target rate surprises reduce trading activity (a positive liquidity-volume relationship). The dynamic changes over time, as unconventional polices are adopted by monetary authorities and, high frequency traders become more pervasive. Central bankers may aid market liquidity by minimizing surprises, and issuing statements that are easier to understand (with shorter sentences and more familiar words).
AB - Monetary policy announcements have a significant impact on financial market liquidity. This study provides a novel perspective on the factors driving this relationship in the market for 10-year Treasury note futures: Target rate surprises and the complexity of the monetary policy statement language are important determinants. Differences of opinion resulting from interpretation of complex language appear to result in more trading volume despite relatively low levels of liquidity (a negative liquidity-volume relationship), while large target rate surprises reduce trading activity (a positive liquidity-volume relationship). The dynamic changes over time, as unconventional polices are adopted by monetary authorities and, high frequency traders become more pervasive. Central bankers may aid market liquidity by minimizing surprises, and issuing statements that are easier to understand (with shorter sentences and more familiar words).
KW - 10-year Treasury note futures
KW - Federal Reserve
KW - Financial markets
KW - FOMC statements
KW - Linguistic complexity
KW - Monetary policy decisions
UR - http://www.scopus.com/inward/record.url?scp=85017459431&partnerID=8YFLogxK
U2 - 10.1016/j.jbankfin.2017.03.017
DO - 10.1016/j.jbankfin.2017.03.017
M3 - Article
AN - SCOPUS:85017459431
SN - 0378-4266
VL - 80
SP - 33
EP - 50
JO - Journal of Banking and Finance
JF - Journal of Banking and Finance
ER -