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Volume dynamics around FOMC announcements

Author

Listed:
  • Sonya Zhu
Abstract
The stock market volume decreases in anticipation of FOMC announcements and increases afterwards. I develop a stylized model and attribute the volume dynamics to discretionary liquidity trading resulting from the presence of private information. Consistent with the model's prediction, I find information asymmetry increases ahead of FOMC announcements, especially before large target rate surprises. Using firm-level high-frequency data, I also find, in the cross-section, that volume changes around these events are particularly stronger for stocks that are more exposed to discretionary liquidity trading. Volume dynamics and liquidity shocks can explain around one third of the pre-FOMC price drift.

Suggested Citation

  • Sonya Zhu, 2023. "Volume dynamics around FOMC announcements," BIS Working Papers 1079, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:1079
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    More about this item

    Keywords

    macroeconomic news; trading volume; liquidity; information asymmetry;
    All these keywords.

    JEL classification:

    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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