The ECB thinks that someone could be leaking US economic data
Movieclips/Youtube
According to a white paper released by the European Central Bank on Monday, there is statistical evidence that a large swath of US economic data is getting leaked early, leading to price shifts in markets before the releases come out.
Here's the key bit from the ECB (emphasis ours):
We find evidence of substantial pre-announcement informed trading in equity index and Treasury futures markets for seven out of 21 market-moving U.S. macroeconomic announcements. About 30 minutes before the release time, prices begin to drift in the direction of the market's subsequent reaction to the news. This drift accounts for 49 percent and 39 percent of the overall price adjustments in the E-mini S&P 500 and 10-year Treasury note futures markets, respectively, and the estimated magnitude of profits of informed traders underscores the economic significance of these price moves.
The ECB team - Alexander Kurov, Alessio Sancetta, Georg Strasser and Marketa Halova Wolfe - analyzed market movements around the releases of 30 data points ranging from the ISM Manufacturing Index to the jobs report to Existing Home Sales.
The biggest market movements, the ECB argued, are those that occur when a data point "surprises" investors. So, using the Bloomberg consensus forecast, the researchers looked at price drifts on the second-by-second S&P 500 market leading up to the release of significant "surprises" or data points that varied greatly from those consensus forecasts.
According to their data, nearly half of the market move due to an economic surprise occurs before the release of that data.
The ECB paper suggests two possible causes for early access to data: information leakage and superior forecasting.
The information leakage hypothesis suggests that people who receive the information during a "lock-up" period before the official release are getting the information out early. This is essentially the nefarious option.
On the other hand, said the paper's authors, it may just be that some market watchers are better than others at predicting the data and are making large, correct trades on publicly available information.
"Some of the superior forecasting ability may be based on smart reprocessing of publicly available data," said the researchers.
"Superior forecasts of the announcement surprises may also be generated by 'digging deeper' into pre-packaged information products, for example, by using forecasts by individual professional forecasters instead of the Bloomberg consensus forecast. Further improvements in forecasting may be due to resource-intensive legwork creating original proprietary datasets that proxy the data underlying public announcements."
Either way, the ECB research shows that much of the profit to be made by a surprising data release is captured prior to the actual data coming out. Whether this is caused by intentional leaks or just better forecasters beating the market is up for debate.
- I spent $2,000 for 7 nights in a 179-square-foot room on one of the world's largest cruise ships. Take a look inside my cabin.
- Colon cancer rates are rising in young people. If you have two symptoms you should get a colonoscopy, a GI oncologist says.
- Saudi Arabia wants China to help fund its struggling $500 billion Neom megaproject. Investors may not be too excited.
- Catan adds climate change to the latest edition of the world-famous board game
- Tired of blatant misinformation in the media? This video game can help you and your family fight fake news!
- Tired of blatant misinformation in the media? This video game can help you and your family fight fake news!
- JNK India IPO allotment – How to check allotment, GMP, listing date and more
- Indian Army unveils selfie point at Hombotingla Pass ahead of 25th anniversary of Kargil Vijay Diwas