Liquidity and Information Flow Around Monetary Policy Announcements
Kee H. Chung
State University of New York at Buffalo - School of Management
Colorado State University
Northern Kentucky University - Haile/US Bank College of Business
July 28, 2012
Journal of Money, Credit and Banking, Forthcoming
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.
Number of Pages in PDF File: 49
Keywords: Monetary Policy, Liquidity, Spread, Depth, Event Study, Market Efficiency
JEL Classification: G14, E52
Date posted: November 9, 2010 ; Last revised: August 7, 2012
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