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Liquidity and Information Flow around Monetary Policy Announcement
Author(s) -
CHUNG KEE H.,
ELDER JOHN,
KIM JANGCHUL
Publication year - 2013
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12025
Subject(s) - market liquidity , monetary policy , monetary economics , stock (firearms) , business , private information retrieval , stock market , information flow , economics , computer security , mechanical engineering , paleontology , horse , computer science , biology , engineering , linguistics , philosophy
We analyze the effects of monetary policy announcements on stock market liquidity using intraday data. We show that the impairment in liquidity associated with policy announcements occurs primarily after, rather than before, the announcements, and is relatively short lived, lasting about 1.5 hours. Liquidity impairment varies proportionately with the information content of the policy announcement, with larger effects associated with unscheduled announcements and scheduled announcements with larger policy surprises. Overall, our results suggest that informed traders have an information processing advantage over uninformed participants rather than access to private information.