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Thick vs. Thin-Skinned

Thick vs. Thin-Skinned

Romain Lafarguette
0/5 ( ratings)
We study the impact of technology on the reaction of financial markets to information, focusing on the foreign exchange market. We contrast the "thin-skinned" view that technological improvements cause markets to react more to new information with the "thick-skinned" view that they react less. We pinpoint exogenous technological changes using the timing of the connection of countries via the submarine fiber-optic cables used for electronic trading. Cable connections dampen the response of exchange rates to macroeconomic news, consistent with the "thick-skinned" hypothesis. This is in line with the view that technology eases access to information and reduces trend-following behavior. According to our estimates, cable connections reduce the reaction of exchange rates to U.S. monetary policy news by 50 to 80 percent.
Format
ebook
Publisher
International Monetary Fund
Release
April 13, 2017
ISBN
1475594739
ISBN 13
9781475594737

Thick vs. Thin-Skinned

Romain Lafarguette
0/5 ( ratings)
We study the impact of technology on the reaction of financial markets to information, focusing on the foreign exchange market. We contrast the "thin-skinned" view that technological improvements cause markets to react more to new information with the "thick-skinned" view that they react less. We pinpoint exogenous technological changes using the timing of the connection of countries via the submarine fiber-optic cables used for electronic trading. Cable connections dampen the response of exchange rates to macroeconomic news, consistent with the "thick-skinned" hypothesis. This is in line with the view that technology eases access to information and reduces trend-following behavior. According to our estimates, cable connections reduce the reaction of exchange rates to U.S. monetary policy news by 50 to 80 percent.
Format
ebook
Publisher
International Monetary Fund
Release
April 13, 2017
ISBN
1475594739
ISBN 13
9781475594737

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