Home Business ECB Finds Evidence Of Insider Trading Ahead Of Announcements

ECB Finds Evidence Of Insider Trading Ahead Of Announcements

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Insider Trading is only allegedly for SAC Capital Point 72? Unfortunately but not surprisingly based on prior incidents with the Fed and other agencies it appears that leaks were given to certain individuals ahead of major economic announcements. The findings come not from ZeroHedge (which everyone reads but loves to bash but) from the ECB itself. The data was likely given to major institutions and used by HFT and traders to profit off the announcements. The worst part is that as people call the market rigged (looking at you Bernie Sanders) and this only provides further evidence to convince others that the market sometimes is possibly rigged. See the ECB study below.

ECB Finds Evidence Of Insider Trading Ahead Of Announcements by European Central Bank


We examine stock index and Treasury futures markets around releases of U.S. macroeconomic announcements. Seven out of 21 market-moving announcements show evidence of substantial informed trading before the official release time. Prices begin to move in the “correct” direction about 30 minutes before the release time. The pre-announcement price drift accounts on average for about half of the total price adjustment. These results imply that some traders have private information about macroeconomic fundamentals. The evidence suggests that the preannouncement drift likely comes from a combination of information leakage and superior forecasting based on proprietary data collection and reprocessing of public information.

ECB Finds Evidence Of Insider Trading Ahead Of Announcements – Introduction

Numerous studies, such as Andersen, Bollerslev, Diebold, and Vega (2007), have shown that macroeconomic news announcements move financial markets. These announcements are quintessential updates to public information on the economy and fundamental inputs to asset pricing. More than a half of the cumulative annual equity risk premium is earned on announcement days (Savor & Wilson, 2013), and the information is almost instantaneously reflected in prices once released (Hu, Pan, & Wang, 2013). To ensure fairness, no market participant should have access to this information until the official release time. Yet, in this paper we find strong evidence of informed trading before several key macroeconomic news announcements.

We use second-by-second E-mini S&P 500 stock index and 10-year Treasury note futures data from January 2008 to March 2014 to analyze the impact of 30 U.S. macroeconomic announcements that previous studies and financial press consider most important. Eleven out of the 21 announcements that move markets exhibit some pre-announcement price drift in the correct” direction, i.e., in the direction of the price change predicted by the announcement surprise. For seven of these announcements the drift is substantial. Prices start to move about 30 minutes before the official release time, and this pre-announcement price move accounts on average for about a half of the total price adjustment.

Previous studies on macroeconomic announcements can be categorized into two groups with regard to pre-announcement effects. The first group does not separate the pre- and post-announcement effects. For example, a seminal study by Balduzzi, Elton, and Green (2001) analyzes the impact of 17 U.S. macroeconomic announcements on the U.S. Treasury bond market from 1991 to 1995. Using a time window from five minutes before to 30 minutes after the official release time t, they show that prices react to macroeconomic news. However, it remains unclear what share of the price move occurs before the announcement. The second group does separate the pre- and post-announcement effects but concludes that the pre-announcement effect is small or non-existent.

Our results differ from those in previous research for four reasons. First, some studies measure the pre-announcement effect in small increments of time. For example, Ederington and Lee (1995) use 10-second returns in the [t – 2min; t + 10min] window around 21 U.S. macroeconomic announcements from 1988 to 1992 and report that significant price moves occur only in the post-announcement interval in the Treasury, Eurodollar and DEM/USD futures markets. However, if the pre-announcement drift is gradual (which is the case in our data), it will not be detected in such small increments. Our approach uses a longer pre-announcement interval and uncovers the price drift.

ECB Insider trading

Second, other studies consider only short pre-announcement intervals. Andersen et al. (2007), for example, include ten minutes before the official release time. In a sample of 25 U.S. announcements from 1998 to 2002, they find that global stock, bond and foreign exchange markets react to announcements only after their official release time. We show that the pre-announcement interval has to be about 30 minutes long to capture the price drift.

Third, we include a larger and more comprehensive set of influential announcements. We augment the set of Andersen, Bollerslev, Diebold, and Vega (2003) with seven announcements frequently discussed in the financial press. Three of these additional announcements exhibit a drift. Because not all market-moving announcements exhibit a drift, limiting the analysis to a small subset can lead to the erroneous conclusion that the pre-announcement drift does not exist in macroeconomic announcements.

ECB Insider trading

Fourth, the difference may stem from parameter instability. Not only do announcement release procedures change over time but information collection and computing power also increase, which might enable sophisticated market participants to forecast some announcements. The main analysis in our paper is based on second-by-second data starting in January 2008. To compare our results to previous studies that use older sample periods, we analyze minute-by-minute data extended back to August 2003. The results suggest that the pre-announcement effect was indeed weak or non-existent in the older sample periods.

ECB Insider trading

See full PDF below.

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