The response of individual FX dealers ’ quoting activity to macroeconomic news announcements ∗

This paper analyses the effect of nine categories of news announcements on the quoting activity of individual FX dealers on the Euro/Dollar exchange rate from May to October 2001. We use the Double Autoregressive Conditional Poisson model (DACP), which is designed for time series of count data, which can be both underor overdispersed. We find that dealers’ quoting activity reacts differently to the same announcements, some increasing their activity, whist others decrease it in response to the same news. We attribute this to the heterogeneous interpretation of the news content by individual traders. This means that studies of quoting activity at the aggregate level can miss the point. Finally, we identify the news announcements that impact quoting activity as non-common knowledge news. K eywords: Foreign Exchange, Market Microstructure, Time Series, Count Data. JEL Classification codes: F31, G15, C35. ∗The authors would like to thank Luc Bauwens for helpful discussions and suggestions. The usual disclaimers apply. Department of Business Administration, Finance Unit, Catholic University of Louvain, Place des Doyens 1, 1348 Louvain-la-Neuve, Belgium, e-mail: [email protected]. Center of Operations Research and Econometrics, Catholic University of Louvain, 34 Voie du Roman Pays, 1348 Louvain-la-Neuve, Belgium, e-mail: [email protected]