Strategic Trading When Central Bank Intervention Is Predictable

Market prices are noisy signals of economic fundamentals. In a two-period model, we show that if the central bank uses market prices as guidance for intervention, large, strategic investors who benefit from high prices would depress market prices to induce a market-supportive intervention. Stronger anticipated interventions lead to deeper price depressions preintervention and sharper price reversals post- intervention. The central bank intervention harms strategic investors even though it is the investors who tried to mislead the central bank. The model predicts a V-shaped price pattern around central bank interventions, consistent with recent evidence. (JEL G14, G18)

Strategic Trading at the Preopening after Earnings Announcements

Prior literature finds the price adjustment after earnings announcements is not immediate. This paper provides evidence that informed investors act strategically to prevent their information from immediately affecting prices after earnings announcements. Specifically, we examine the price discovery at the preopening auction after earnings announcements. We show that traders place more orders at the end of the preopening after earnings announcements, a behavior that reduces the market's ability to learn their information, and we find they profit from these late orders.