Drift Begone! Release Policies and Preannouncement Informed Trading

Abstract

In 2017 the UK Statistics Authority discontinued the early access of government officials to market-sensitive macroeconomic data. We examine the effect of this policy change on price adjustment in the foreign exchange futures market around major U.K. macroeconomic announcements. Three macroeconomic announcements (consumer price index, industrial production, and retail sales) show strong evidence of informed trading before their public releases until 2017. This preannouncement price drift weakens with the end of the prerelease access. Consistent with less informed trading before the announcements, the market reaction to the announcements at the official release time has become larger, and the speed of adjustment has become slower. Our findings have policy implications for countries that still utilize macroeconomic announcement prereleases to government officials.

Keywords: Macroeconomic news announcements, foreign exchange market, release policies, preannouncement effect, drift, informed trading

JEL Classification: G14, E44, F31, D82