Volume Dynamics around FOMC Announcements

Posted: 7 Jan 2021 Last revised: 19 May 2022

See all articles by Xingyu Sonya Zhu

Xingyu Sonya Zhu

Bank for International Settlements (BIS)

Date Written: January 11, 2021

Abstract

The stock market volume decreases in anticipation of FOMC announcements and increases afterward. Using firm-level high-frequency price and volume data for over 20 years, I find, in the cross-section, that volume changes around FOMC announcements are particularly stronger for stocks with higher market risk exposure, higher market liquidity, and larger market capitalization. I develop a stylized model and attribute the volume dynamics to discretionary liquidity trading resulting from the presence of private information. Consistent with the model's prediction, I find that information asymmetry increases ahead of FOMC announcements, but only for high-beta stocks. However, the presence of private information ahead of FOMC announcements overall does not introduce substantial liquidity shocks to the stock market.

Keywords: macroeconomic news, trading volume, liquidity, information asymmetry

JEL Classification: D18, G12, G14

Suggested Citation

Zhu, Xingyu, Volume Dynamics around FOMC Announcements (January 11, 2021). Swedish House of Finance Research Paper No. 21-3, Available at SSRN: https://ssrn.com/abstract=3730543 or http://dx.doi.org/10.2139/ssrn.3730543

Xingyu Zhu (Contact Author)

Bank for International Settlements (BIS) ( email )

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Basel, Basel-Stadt 4002
Switzerland
0763508422 (Phone)

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