The Impact of Central Bankks Verbal Interventions on Stock Exchange Indices in a Resource Based Economy: The Evidence from Russia

Abstract

This paper analyzes the intra-day impact of the Bank of Russia’s verbal interventions on the Russian stock exchange indices in 2014-2015. With this aim, we construct the communication index, which summarizes the verbal interventions of the Bank of Russia during this period. After that, we estimate GARCH model using intraday data on the returns of RTS and MICEX indices. We also take into account the price of futures contracts on BRENT as the Russian economy has a strong dependence on oil prices. We show that the verbal interventions of the Bank of Russia have a positive short-term impact on the RTS returns, but do not affect their volatility. This results contradict previous studies, which show that usually central bank’s communication has a strong effect on the volatility of indices, but does not affect their returns. We suggest that this contradiction arises from the fact that we consider an export orientation of the economy, which has not been examined in previous studies.