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Can information be locked up? Privately informed trading ahead of macro-news announcements

Chicago Quantitative Alliance Conference
2014
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Conference Paper Description

U.S. government agencies routinely allow pre-release access to macroeconomic data to accredited news agencies under embargo agreements. Using high frequency data, we find evidence consistent with informed trading during news embargoes of the Federal Open Market Committee’s (FOMC) scheduled announcements. The E-mini S&P 500 futures' average abnormal order imbalance is statistically significant and in the direction of subsequent policy surprises. Our estimates of pre-release informed trades’ dollar profits range between $4.5 and $210.5 million when aggregated across all markets and FOMC’s surprise announcements that we examine. Notably, we find no evidence of informed trading immediately prior to FOMC’s news embargoes or during lockups ahead of nonfarm payroll, CPI, and GDP data releases.

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