Download this Paper Open PDF in Browser

Liquidity and Information Flow Around Monetary Policy Announcements

Journal of Money, Credit and Banking, Forthcoming

49 Pages Posted: 9 Nov 2010 Last revised: 7 Aug 2012

Kee H. Chung

State University of New York at Buffalo - School of Management

John Elder

Colorado State University

Jang-Chul Kim

Northern Kentucky University - Haile/US Bank College of Business

Date Written: July 28, 2012

Abstract

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.

Keywords: Monetary Policy, Liquidity, Spread, Depth, Event Study, Market Efficiency

JEL Classification: G14, E52

Suggested Citation

Chung, Kee H. and Elder, John and Kim, Jang-Chul, Liquidity and Information Flow Around Monetary Policy Announcements (July 28, 2012). Journal of Money, Credit and Banking, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1706172 or http://dx.doi.org/10.2139/ssrn.1706172

Kee H. Chung (Contact Author)

State University of New York at Buffalo - School of Management ( email )

Buffalo, NY 14260
United States
716-645-3262 (Phone)
716-645-3823 (Fax)

HOME PAGE: http://mgt.buffalo.edu/faculty/academic-departments/finance/faculty/kee-chung.html

John Elder

Colorado State University ( email )

Dept of Finance & Real Estate
1272 Campus Delivery
Fort Collins, CO 80523
United States
970-491-2952 (Phone)

HOME PAGE: http://lamar.colostate.edu/~jelder

Jang-Chul Kim

Northern Kentucky University - Haile/US Bank College of Business ( email )

Dept of Accounting, Finance, and Business Law
Highland Heights, KY 41099
United States
859-572-1486 (Phone)

Paper statistics

Downloads
183
Rank
138,420
Abstract Views
1,063