You are here

Fed uses leaks to 'steer market expectations,' study finds

Section: Daily Dispatches

UC Berkeley Professor, Research Team Find Evidence of Information Leaks by Fed

By Anderson Lanham
The Daily Californian
Berkeley, California
Monday, November 30, 2015

http://www.dailycal.org/2015/11/30/uc-berkeley-professor-research-team-f...

University of California at Berkeley professor Annette Vissing-Jorgensen and her research team have discovered evidence that the Federal Reserve regularly leaks information to certain investors and media outlets, leading to a spike in stock returns.

In the study, Vissing-Jorgensen and her team discovered a biweekly pattern of high return rates that occurred after each meeting of the Federal Open Market Committee and on the weeks of closed meetings of the Board of Governors of the Federal Reserve System. According to the study, this suggests that information leaked from these closed meetings is what drives the pattern, which the researchers have concluded could have positive effects on the market. ...

... Dispatch continues below ...



ADVERTISEMENT

USAGold: Coins and bullion since 1973


USAGold, well known for its Internet site, USAGold.com, offers contemporary bullion coins and bullion-related historic gold coins for delivery to private investors in the United States, Europe, Canada, Australia, and New Zealand. It is one of the oldest and most respected names in the gold industry, with thousands of clients and an approach to investment that emphasizes guidance and individual needs over high-pressure sales tactics. The firm's zero-complaint record at the Better Business Bureau makes it an ideal match for the conservative, long-term investor looking for a reliable contact in the gold business.

Please call 1-800-869-5115x100 and ask for the trading desk, or visit:

http://www.USAGold.com

USAGold: Great prices, quick delivery -- all the time.



In an email, the three authors of the study -- Vissing-Jorgensen, Duke University assistant professor Anna Cieslak, and UC Berkeley assistant professor Adair Morse -- said the Fed uses "informal communication channels" on even-numbered weeks after FOMC meetings. These leaks can appear in newspapers such as the Wall Street Journal before board meeting minutes are publicly released and relay valuable information about Fed meetings.

The researchers claim evidence of regular leaks from the Fed by comparing the content of the newspaper articles with subsequently released board meeting minutes and pointing to private advice received by financial investors that contains information discussed in FOMC meetings.

In their study, the researchers said the Fed leaks information to "steer market expectations," which allows it to enact continuous, incremental policy changes. The researchers additionally said in the email that the Fed can release information about either the economy or policy preferences of various FOMC members.

"We need to understand better which type of Fed news drives the stock market behavior and earns the premium," the researchers said in an email.

According to the researchers, they began collecting data in late 2012 in an attempt to establish the Fed's communication processes with both investors and the public. In an attempt to demonstrate that the biweekly spikes did not correlate with other economic news, they compared their data to Bloomberg news releases on economic data such as GDP growth and consumer confidence. The study found that the spikes in investor return rates did not match up with the releases.

"The data collection exercise was extensive, but it served our goal to understand how the Fed processes information internally and how it communicates with the public and the financial markets in particular," the researchers said in an email.

The findings have brought up several questions, including those about the most effective way for the Fed to communicate with the public, according to the researchers. They also said their study's findings are controversial because they argue that the Fed knowingly leaks information.

"While some informal communication is probably necessary for the Fed to learn from market participants, this is a fine balance since the Fed may be giving away very valuable information to particular investors in the private sector," the researchers said in an email.

The researchers argued that sanctioned, clear public communication should be a substitute for informal communication, saying it would allow market expectations to be steered publicly and allow the public to request feedback on potential policy moves.

* * *

Support GATA by purchasing DVDs of GATA's London conference in August 2011 or GATA's Dawson City conference in August 2006:

http://www.goldrush21.com/order.html

Or by purchasing a colorful GATA T-shirt:

http://gata.org/tshirts

Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009:

http://gata.org/node/wallstreetjournal

Help keep GATA going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:

http://www.gata.org

To contribute to GATA, please visit:

http://www.gata.org/node/16