Real-time Price Discovery via Verbal Communication: Method and Application to Fedspeak
Dr. Roberto Gomez Cram
Assistant Professor of Finance
London Business School
We study the price discovery process during FOMC days. For several asset classes we find that price movements around the post-meeting statement release are strong predictors of price movements around the subsequent press conference. The correlation is as high as 58% for medium-term Eurodollar futures and 44% for the S&P 500 index. We then use press-conference videos, timestamp the words pronounced, and align them with high-frequency financial data. Minutes in which the Chairman discusses changes in the newly-issued policy statement lie behind the positive correlation. We discuss several potential explanations and consider the implications of our findings for asset pricing and monetary economics.
