Template-Type: ReDIF-Paper 1.0
Author-Name: Sonya Zhu
Author-X-Name-First: Sonya 
Author-X-Name-Last: Zhu
Title: Volume dynamics around FOMC announcements
Abstract: The stock market volume decreases in anticipation of FOMC announcements and increases afterwards. 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 information asymmetry increases ahead of FOMC announcements, especially before large target rate surprises. Using firm-level high-frequency data, I also find, in the cross-section, that volume changes  around these events are particularly stronger for stocks that are more exposed to discretionary liquidity trading. Volume dynamics and liquidity shocks can explain around one third of the pre-FOMC price drift.
Creation-Date: 2023-03
File-URL: https://www.bis.org/publ/work1079.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1079.htm
File-Format: text/html
Number: 1079
Keywords: macroeconomic news, trading volume, liquidity, information asymmetry
Classification-JEL: D18, G12, G14
Handle: RePEc:bis:biswps:1079