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Liquidity and Information Flow around Monetary Policy Announcement

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  • KEE H. CHUNG
  • JOHN ELDER
  • JANG-CHUL KIM

Abstract

We analyze the effects of monetary policy announcements on stock market liquidity using intraday data. We show that the impairment in liquidity associated with policy announcements occurs primarily after, rather than before, the announcements, and is relatively short lived, lasting about 1.5 hours. Liquidity impairment varies proportionately with the information content of the policy announcement, with larger effects associated with unscheduled announcements and scheduled announcements with larger policy surprises. Overall, our results suggest that informed traders have an information processing advantage over uninformed participants rather than access to private information.
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Suggested Citation

  • Kee H. Chung & John Elder & Jang-Chul Kim, 2013. "Liquidity and Information Flow around Monetary Policy Announcement," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(5), pages 781-820, August.
    • Handle: RePEc:mcb:jmoncb:v:45:y:2013:i:5:p:781-820
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    Cited by:

    1. Jieun Lee & Doojin Ryu, 2019. "The impacts of public news announcements on intraday implied volatility dynamics," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(6), pages 656-685, June.
    2. Benchimol, Jonathan & Saadon, Yossi & Segev, Nimrod, 2023. "Stock market reactions to monetary policy surprises under uncertainty," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 89, pages 1-12.
    3. Rosa, Carlo, 2016. "Walking on thin ice: Market quality around FOMC announcements," Economics Letters, Elsevier, vol. 138(C), pages 5-8.
    4. Chung, Kee H. & Park, Seongkyu “Gilbert” & Ryu, Doojin, 2016. "Trade duration, informed trading, and option moneyness," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 395-411.
    5. Smales, L.A., 2019. "Slopes, spreads, and depth: Monetary policy announcements and liquidity provision in the energy futures market," International Review of Economics & Finance, Elsevier, vol. 59(C), pages 234-252.
    6. Lyu, Xiaoyi & Hu, Hao, 2024. "The dynamic impact of monetary policy on stock market liquidity," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 388-405.
    7. Sharif, Taimur & Bouteska, Ahmed & Zoynul Abedin, Mohammad & Cotturone, Saulo, 2025. "An enquiry into the monetary policy and stock market shocks in the US," International Review of Economics & Finance, Elsevier, vol. 98(C).
    8. Pham, Thu Phuong & Singh, Harminder & Vu, Van Hoang, 2023. "The impact of bank loan announcements on stock liquidity," International Review of Economics & Finance, Elsevier, vol. 86(C), pages 848-864.
    9. Smales, L.A. & Lucey, B.M., 2019. "The influence of investor sentiment on the monetary policy announcement liquidity response in precious metal markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 60(C), pages 19-38.
    10. Lee, Jieun, 2024. "Dollar and government bond liquidity: Evidence from Korea," Journal of International Economics, Elsevier, vol. 152(C).
    11. Miruna-Daniela Ivan & Chiara Banti & Neil Kellard, 2025. "Liquidity, monetary policy and the commodity futures market," Bank of England working papers 1114, Bank of England.
    12. Suchismita Mishra & Le Zhao, 2021. "Order Routing Decisions for a Fragmented Market: A Review," JRFM, MDPI, vol. 14(11), pages 1-32, November.
    13. Smales, L.A. & Apergis, N., 2017. "Understanding the impact of monetary policy announcements: The importance of language and surprises," Journal of Banking & Finance, Elsevier, vol. 80(C), pages 33-50.
    14. Jieun Lee, 2023. "Dollar and government bond liquidity: evidence from Korea," BIS Working Papers 1145, Bank for International Settlements.
    15. Jieun Lee & Doojin Ryu & Ali M. Kutan, 2016. "Monetary Policy Announcements, Communication, and Stock Market Liquidity," Australian Economic Papers, Wiley Blackwell, vol. 55(3), pages 227-250, September.

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