UCL Department of Economics


Finance Seminar - Hengjie Ai (Wisconsin)

22 March 2023, 4:00 pm–5:15 pm

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Information Acquisition and the Pre-Announcement Drift

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Ming Yang

Abstract: We present a dynamic Grossman-Stiglitz model with endogenous information acquisition to explain the pre-FOMC announcement drift. Because FOMC announcements reveal substantial information about the economy, investors' incentives to acquire information are particularly strong days ahead of the announcements. Information acquisition partially resolves the uncertainty for uninformed traders. Under generalized risk sensitive preferences (Ai and Bansal, 2018), resolution of uncertainty is associated with realizations of risk premium, generating a pre-FOMC announcement drift. Because our theory does not rely on leakage of information about the contents of the announcement, it can simultaneously explain the high average return and the low realized volatility during the pre-FOMC announcement period.


Location: B20 Jevons Lecture Theatre, Drayton House or Zoom.https://ucl.zoom.us/j/7364873755?pwd=QzNUeUpnNit2U2JMZnpZbmZwV2pZdz09+

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