{
  "title": "Thick vs. Thin-Skinned: Technology, News, and Financial Market Reaction",
  "publication": "IMF Working Papers, April 7, 2017",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2017/04/07/thick-vs-44810",
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  "summary": "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.",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Research question: Impact of technology on financial market reaction to information, with a focus on the foreign exchange market.\n- Competing hypotheses:\n  - “Thin-skinned”: technological improvements cause markets to react more to new information.\n  - “Thick-skinned”: technological improvements cause markets to react less to new information."
    },
    {
      "heading": "Methodology",
      "content": "- Identification strategy: Pinpoint exogenous technological changes using the timing of the connection of countries via submarine fiber-optic cables used for electronic trading.\n- Empirical focus: Response of exchange rates to macroeconomic news and to U.S. monetary policy news."
    },
    {
      "heading": "Key findings",
      "content": "- Cable connections dampen the response of exchange rates to macroeconomic news, consistent with the “thick-skinned” hypothesis.\n- Interpretation: Technology eases access to information and reduces trend-following behavior.\n- Quantitative estimate: Cable connections reduce the reaction of exchange rates to U.S. monetary policy news by 50 to 80 percent."
    },
    {
      "heading": "Implications and interpretation",
      "content": "- Increased connectivity via submarine fiber-optic cables is associated with weaker immediate exchange-rate reactions to macro announcements.\n- The evidence supports a view of technological adoption that moderates market sensitivity to policy news by improving information access and reducing momentum-driven trading.\n\nThick vs. Thin-Skinned: Technology, News, and Financial Market Reaction, Barry J. Eichengreen, Romain Lafarguette, and Arnaud Mehl, April 7, 2017; IMF Working Paper No. 2017/091.\n\n---\n\n Content in this bundle\n\n- wp1791\n  - wp1791 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp1791 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2017/04/07/thick-vs-44810"
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    "Authors: Barry J. Eichengreen, Romain Lafarguette, Arnaud Mehl",
    "Published: April 7, 2017",
    "Series: IMF Working Papers",
    "Research question: Impact of technology on financial market reaction to information, with a focus on the foreign exchange market.",
    "Competing hypotheses:",
    "Identification strategy: Pinpoint exogenous technological changes using the timing of the connection of countries via submarine fiber-optic cables used for electronic trading.",
    "Empirical focus: Response of exchange rates to macroeconomic news and to U.S. monetary policy news.",
    "Cable connections dampen the response of exchange rates to macroeconomic news, consistent with the “thick-skinned” hypothesis.",
    "Interpretation: Technology eases access to information and reduces trend-following behavior.",
    "Quantitative estimate: Cable connections reduce the reaction of exchange rates to U.S. monetary policy news by 50 to 80 percent.",
    "Increased connectivity via submarine fiber-optic cables is associated with weaker immediate exchange-rate reactions to macro announcements.",
    "The evidence supports a view of technological adoption that moderates market sensitivity to policy news by improving information access and reducing momentum-driven trading.",
    "**wp1791**"
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