According to data provided by Singapore Management University, some traders since 1997 to 2013 could have received early notice on changes to Federal Reserve policy prior to the official announcement of policy shifts. Fed announcements and policy have been a driving force in market activity within the last several years.
The Singapore-based research presented evidence of abnormally large price movements and imbalances in buy and sell orders that are “statistically significant and in the direction of the subsequent policy surprise,” according to the study’s authors, Gennaro Bernile, Jianfeng Hu and Yuehua Tang. “We find robust evidence of informed trading, as measured by the abnormal price run-up and order imbalance of equity index futures and exchange-traded funds, during the lockup periods ahead of FOMC announcements,” said the co-authors. The study focused on the E-mini S&P 500 and E-mini Nasdaq 100 futures, as well as the SPDR S&P 500 and PowerShares QQQ exchange-traded funds (ETFs).
Interestingly enough, these statistically significant moves would take place during the media lockup. This is the period where reporters would be given the Federal Open Market Committee (FOMC) statement just prior to the public announcement. It is reported that reporters are literally locked up in a room where no means of communication are allowed to prevent the data from being leaked ahead of time.
The purpose of the lockup is to allow reporters, 20 minutes prior to the release, enough time to prepare stories. Once the 20 minute period ends, communication is reestablished and reporters are allow to transmit their stories.
Over the last two years, there has been an increasing focus on how trading activity is conducted around key economic data and policy releases. While many studies show that peculiar activity happens during these events, including the London gold fixing, it is difficult to determine whom the culprits are.