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Documenting information leakages

Documenting information leakages

There was a long-held suspicion among finance practitioners and specialised journalists that information leakages ahead of macroeconomic announcements were common and generated informed trading.

The research of Professor Sancetta and co-authors uncovered movements in financial asset prices that could only be explained by information leakages of macroeconomic data. These finding stimulated journalistic investigations, leading to a change in government data release policy and reduced the practice of informed trading.

The research enabled the understanding among policy-makers and triggered a debate among public bodies, such as the House of Common’s Treasury Select Committee, UK’s Financial Conduct Authority and Germany’s Federal Statistical Office (Destatis). This led to a subsequent change in early data release policies by the UK and Germany’s statistical offices. After the policy changes, informed trading was reduced in the UK.

Enabling journalistic research

The evidence that an informational advantage in financial markets in the United States was driven by the pre-release of macroeconomic data (e.g. to government members, advisers and journalists) prompted specialised journalists to write a series of articles in the Wall Street Journal. Using the research’s methodology, the articles replicated the findings in other countries with similar pre-release policies, including the UK and Germany.

Professor Sancetta’s research provided evidence and a methodology for journalists to investigate and produce newspaper articles in relation to the possibility of informed trading in countries with different pre-release data policies and practices, such as the US, UK Germany and Sweden. The research findings were highly cited by the press, including CNN, The Financial Times, and Bloomberg.

Informing debate and shaping policy

The wide coverage of the research reached key stakeholders, leading to a public debate. The concerns mobilised policy makers and eventually led the Office of National Statistics in the UK to abandon the practice of providing information to public officials, advisers and journalists ahead of the release of key macroeconomic data.

Similar events took place in Germany. Destatis, the German statistics agency, stopped the pre-release of macroeconomic data to journalists in December 2017. This came after the publication of an article in the Wall Street Journal that used Professor Sancetta’s methodology on German data.

Professor Sancetta was invited to the FCA to present and discuss the research’s findings, including the evidence regarding informed trading in the UK and Sweden. Ongoing research by Professor Sancetta and co-authors finds that, after the change in policy by the ONS, financial assets in the UK do not show any more movements that are consistent with information leakages ahead of public release of official data.

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