News announcements, market activity and volatility in the euro/dollar foreign exchange market

We study the impact of nine categories of scheduled and unscheduled news announcements on the euro/dollar return volatility. We highlight and analyze the pre-announcement, contemporaneous and postannouncement reactions. Using high-frequency intraday data and within the framework of ARCH-type models, we show that volatility increases in the pre-announcement periods, particularly before scheduled events. Market activity also significantly impacts return volatility as expected by the theoretical literature on the order flow. (c) 2005 Elsevier Ltd. All rights reserved.