Bernile, Gennaro and Hu, Jianfeng and Tang, Yuehua, Can Information Be Locked-Up? Informed Trading Ahead of Macro-News Announcements (May 10, 2014). Available at SSRN: http://ssrn.com/abstract=2436272

“U.S. government agencies routinely allow pre-release access to macroeconomic data to accredited news agencies under embargo agreements (i.e., news embargo or lockup). We use high frequency data to investigate whether there is informed trading in major equity index futures and exchange traded funds during lockup periods prior to salient macro-news announcements. Consistent with information leakage, we find robust evidence of informed trading during lockup periods ahead of the Federal Open Market Committee (FOMC) monetary policy announcements. In particular, during FOMC’s lockups, both the E-mini S&P 500 futures’ average abnormal order imbalance, 8.4%-9.5%, and its average abnormal price run-up, 20.5 basis points, are statistically significant and in the direction of the subsequent policy surprise. Across the four markets that we examine, estimates of informed traders’ aggregate dollar profits during lockups ahead of all FOMC’s surprise announcements range between $14 and $256 million. While our evidence challenges the effectiveness of the FOMC’s lockup practices, we find no evidence of informed trading ahead of nonfarm payroll, CPI, and GDP data releases by other government agencies.”

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