Pre-FOMC Information Asymmetry

53 Pages Posted: 19 Nov 2018 Last revised: 5 Jan 2023

See all articles by Farshid Abdi

Farshid Abdi

Texas A&M University

Botao Wu

The Chinese University of Hong Kong (CUHK) - CUHK Business School

Date Written: August 1, 2018


We uncover informed trading on the days before federal open market committee (FOMC) announcements. We show that this informed trading can explain the pre-FOMC announcement drift in the stock market, by contributing to the resolution of uncertainty before announcement. We document three distinct novel evidences supporting this. First, we show that U.S. corporate bond yield changes in the blackout period before FOMC announcements can predict monetary policy surprises, with about 30% R-squared. Second, and consistent with informed trading, we show that corporate bond customers tend to buy before upcoming expansionary FOMC surprises and sell before contractionary FOMC surprises. Finally, we uncover pre-FOMC information flow from corporate bond to the stock market by showing that (a) corporate bond yield changes Granger-cause stock market pre-FOMC movements, and (b) lagged corporate bond customer-dealer trade imbalances can explain pre-FOMC stock market returns, and the pre-announcement drift.

Keywords: Pre-FOMC Announcement Drift, Informed Trading, Resolution of Uncertainty, TRACE

JEL Classification: G10, G12, E44, E52

Suggested Citation

Abdi, Farshid and Wu, Botao, Pre-FOMC Information Asymmetry (August 1, 2018). NYU Stern School of Business, Available at SSRN: or

Farshid Abdi (Contact Author)

Texas A&M University ( email )

Mays Business School | Texas A&M University
210 Olsen Boulevard
College Station, TX 77843-4218
United States

Botao Wu

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, N.T.
Hong Kong

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