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.

RELATED TERMS
  1. Reaction

    A reaction is a reversal in the movement of a security's price, ...
  2. Change

    For an options or futures contract, change is the difference ...
  3. Street Expectation

    Street expectation is the average estimate of a public company’s ...
  4. Price Change

    A price change indicates a new valuation has been made on the ...
  5. Fed Funds Futures

    Fed funds futures are contracts that reflect market predictions ...
  6. Response Lag

    Response lag is the time it takes for corrective monetary and ...
Related Articles
  1. Insights

    How Much Influence Does The Fed Have?

    Find out how current financial policies may affect your portfolio's future returns.
  2. Insights

    Fiscal Policy vs. Monetary Policy: Pros & Cons

    When it comes to influencing macroeconomic outcomes, governments have typically relied on one of two courses of action: monetary policy or fiscal policy.
  3. Investing

    Understanding Stock Splits

    We explain what they are, the thinking behind them as well as their results.
  4. Insights

    Yellen: Fed to Tighten “A Few Times Per Year” Through 2019

    Fed Chair Yellen sees a "few hikes a year" to rates through 2019; FOMC minutes suggest December rate hike was in part reaction to Trump.
  5. Personal Finance

    How the Federal Reserve Affects Your Mortgage

    The Federal Reserve can impact the cost of funds for banks and consequently for mortgage borrowers when maintaining economic stability.
  6. Trading

    Yellen Nods to China, Fiscal Policy in Testimony

    Federal Reserve Chair Janet Yellen spoke about the FOMC's​ assessment of domestic and global economic conditions and the anticipated path of the federal funds rate Tuesday afternoon at the Economic ...
  7. Investing

    Understanding Stock Prices and Values

    Find out why a stock with a six-figure share price can still be a good value.
  8. Personal Finance

    How interest rate cuts affect consumers

    Traders rejoice when the Fed drops the rate, but is it good news for all? Find out here.
  9. Trading

    How To Trade The News

    Regardless of your investing horizon, learning to trade the news is an essential skill for astute portfolio management and long-term performance.
RELATED FAQS
  1. How does a stock split affect cash dividends?

    When a company issues a stock split it can affect an upcoming cash dividend. It depends on the time the shares split and ... Read Answer >>
  2. Is a Dividend Cut a Signal to Sell?

    Find out why a dividend cut is generally viewed as a signal to sell and how the news of a dividend reduction can trigger ... Read Answer >>
  3. How does a company decide when it is going to split its stock?

    Learn why some companies decide to split their shares, and understand how they think it helps the stock's liquidity and future ... Read Answer >>
Hot Definitions
  1. Business Cycle

    The business cycle describes the rise and fall in production output of goods and services in an economy. Business cycles ...
  2. Futures Contract

    An agreement to buy or sell the underlying commodity or asset at a specific price at a future date.
  3. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  4. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  5. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  6. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
Trading Center