Announcement Effect

The impact on markets from the news that a change will occur at some future date. It can be used as a general term for the reaction to any development that affects trading, such as a change in dividend policy or a stock split. It is most often used, however, to describe investor reactions to changes in monetary policy, such as a hike or cut in a key interest rate level.

Also known as a "signal effect."

Stock traders eagerly await the announcement of changes in Federal Reserve policy, and stock volumes are notably higher on so-called Fed days; depending on the investment environment, volatility may be substantially heightened as well. Researchers have also found that trading on the day preceding announcements of Fed policy is relatively calm.


Investment dictionary. . 2012.

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