Announcement Effect

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DEFINITION of '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."

BREAKING DOWN 'Announcement 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.

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RELATED FAQS
  1. Why do stock prices change following news reports?

    Stock prices move up and down every minute due to fluctuations in supply and demand. If more people want to buy a particular ... Read Full Answer >>
  2. How do dividend distributions affect additional paid in capital?

    Whether a dividend distribution has any effect on additional paid-in capital depends solely on what type of dividend is issued: ... Read Full Answer >>
  3. What is the average annual dividend yield of companies in the retail sector?

    According to data published by the NYU Leonard N. Stern School of Business, as of January 2015, the average annual dividend ... Read Full Answer >>
  4. Which retail stocks pay the highest dividends?

    The retail sector consists of diverse groups of companies that specialize in pure online retail sales, brick-and-mortar retail ... Read Full Answer >>
  5. How can the price of a stock change on the ex-dividend date?

    An investor looking for a dividend-paying stock has two important dates to consider when investing in a company. The first ... Read Full Answer >>
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