Journal of Money, Credit and Banking, Forthcoming
49 Pages Posted: 9 Nov 2010 Last revised: 7 Aug 2012
Date Written: July 28, 2012
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: 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