Economic Announcement Days vs. No Announcement Days

It is not news that news moves financial markets. This blog will publish research on how, when, why, and which news moves what financial markets. How do announcement days (days on which an announcement of a U.S. economic indicator is made) differ from other days? I looked at 946 days between 2/19/2004 and 9/21/2006. At 8:30am on those days I looked at the EURUSD exchange rate and calculated the one-minute return. I also calculated the absolute change in pips (traders use the movement in the fourth decimal place or the absolute change in price time 10,000). Then I looked at just days on which one of five major announcements was made (retail sales ex-autos, non-farm payrolls, preliminary GDP, initial jobless claims, and the trade balance). All of these announcements are at 8:30am Eastern Time. The returns (pips) for the announcement days was 106 times greater (109 times greater) than for non-announcement days. The range in pips was -101 to 151 versus -30 to 39. Plotting returns both against a normal distribution shows the differences. First announcement days:Notice that there are a lot of returns close to zero on those days that the market anticipated correctly the announcement. But also notice that there are lots of outliers beyond the tails of a fitted normal distribution. For non-announcement days we need to put the chart on the same range to show the distribution on a similar footing:The difference in the distributions is striking, announcement day returns have a huge variance compared to non-announcement days. You can see why hedge funds, traders, and banks think that announcement days are tremendous trading opportunities. This is just looking at returns (or risk) to buying and selling (or holding) the Euro vis. a vis. the U.S. dollar around announcement days. To understand these large moves in the EURUSD exchange rate we must examine the market expectation, the actual release and the relationship between these and the financial markets. For more on this see my previous (or forthcoming) posts.