Bloomberg today has an interesting piece on unusual trading activity observed by academic researchers during the Federal Reserve's media lockup that happens prior to its highly anticipated announcements:
A research paper has found “robust evidence” that some traders have been getting early news of U.S. Federal Reserve rate announcements and then trading on it during the Fed’s media lockup.Federal Reserve officials have received copies of the academic paper and have said they would respond:
The paper detects abnormally large price movements and imbalances in buy and sell orders that are “statistically significant and in the direction of the subsequent policy surprise.” The moves occurred during the window between when Fed announcements are supplied to the news media and when they are permitted to be released to the public, the authors write.
“Back-of-the-envelope calculations indicate that the aggregate dollar profits … range between $14 [million] and $256 million across the four markets that we examine” between 1997 and 2013, the authors write.
The paper is titled “Can information be locked-up? Informed trading ahead of macro-news announcements” and was written by Gennaro Bernile, Jianfeng Hu, and Yueha Tang of Singapore Management University. It has been posted online on the Social Science Research Network. Bernile, the lead author, said he plans to start submitting it to academic journals in about a month after getting feedback on it from colleagues.
I forwarded copies of the study to spokespeople for the Federal Reserve and the Commodity Futures Trading Commission. Both said they would look at it and respond.
The Federal Reserve announced in October that it would tighten its procedures governing the release of Federal Open Market Committee policy statements.