Anatomy of a Government Intervention in Index Stocks: Price Pressure or Information Effects?

Karan Bhanot
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Karan Bhanot: University of Texas at San Antonio

The Journal of Business, 2006, vol. 79, issue 2, 963-986

Abstract: In a massive intervention designed to deter speculators, the Hong Kong Monetary Authority (HKMA) bought Hang Seng index stocks in August 1998. These stocks experienced a 24% abnormal return during the intervention period. The abnormal returns are not reversed over the next eight weeks, refuting the hypothesis that returns are due to temporary liquidity effects. Cross-sectional analysis of daily abnormal returns during the intervention period reveals that these returns are related to overall intervention activity rather than stock-specific intervention. This evidence is consistent with information effects rather than price pressure effects.

Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:ucp:jnlbus:v:79:y:2006:i:2:p:963-986

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