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               Department of Systems Engineering and Engineering Management

                       The Chinese University of Hong Kong

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Date: Friday Nov 11, 4:30 pm – 5:30 pm

Venue: ERB 513, The Chinese University of Hong Kong

Title: The Pre-FOMC Announcement Drift and Private Information: Kyle Meets Macro-Finance

Speaker: Prof. Chao Ying, Department of Finance, The Chinese University of Hong Kong

Abstract:

This paper studies the private information explanation for the timing and time series of the pre-FOMC announcement drift. I document informed trading is in the same direction as the realized returns in the 24-hour window before FOMC. I extend Kyle’s (1985) model to be the case where market makers are compensated for the riskiness of assets’ fundamentals. Observing aggregate order flow, market makers update their belief about the marginal-utility-weighted asset value, which gradually resolves uncertainty, resulting in an upward drift in market prices. I demonstrate a strictly positive pre-FOMC announcement drift if and only if market makers require risk compensation.

Biography:

Prof. Chao Ying is an Assistant Professor in the Department of Finance at the Chinese University of Hong Kong (CUHK) Business School. His research interests include asset pricing, macro-finance, and dynamic corporate theory. He received his PhD in Finance from the University of Minnesota in 2021.

Everyone is welcome to attend the talk!

SEEM-5201 Website: http://seminar.se.cuhk.edu.hk

Email: seem5201@se.cuhk.edu.hk