Anatomy of a Government Intervention in Index Stocks: Price Pressure or Information Effects?
In a massive intervention designed to deter speculators, the Hong Kong Monetary Authority (HKMA) bought Hang Seng index stocks in August 1998. These stocks experienced a 24% abnormal return during the intervention period. The abnormal returns are not reversed over the next eight weeks, refuting the hypothesis that returns are due to temporary liquidity effects. Cross-sectional analysis of daily abnormal returns during the intervention period reveals that these returns are related to overall intervention activity rather than stock-specific intervention. This evidence is consistent with information effects rather than price pressure effects.