Price Pressure and Efficiency on FOMC Announcements

We examine the impact of the surge in trading activity following FOMC announcements on price discovery in the equity market, in particular in the highly liquid S&P 500 E-mini futures. In contrast to the hypothesis that all trading reflects learning about these public news announcements, we find that trading is associated with a decrease in price informativeness and order imbalances generate substantial price reversals reaching 60 basis points even at horizons of several hours. Our findings show that price pressure is prevalent in the most liquid assets following public news and have direct implications for measuring the impact of monetary policy news on equity prices.