Zerohedge: Another “Conspiracy Theory” Confirmed: ECB Finds Widespread Trading On Leaked Inside Information

http://www.zerohedge.com/news/2016-05-02/another-conspiracy-theory-confirmed-ecb-finds-pervasive-trading-inside-information-a

Another “Conspiracy Theory” Confirmed: ECB Finds Widespread Trading On Leaked Inside Information


Submitted by Tyler Durden on 05/02/2016 10:21 -0400

“information of many macroeconomic announcements
 is known by some market participants in advance  

- European Central Bank

Remember when it was merely another conspiracy theory that “some” traders “trade” (with zero risk) with the benefit of leaked material non-public information? As of moments ago it is merely the latest conspiracy fact, confirmed by none other than the ECB, which earlier today published a research paper which finds substantial “informed” trading before the official release in seven of 21 market-moving U.S. macroeconomic announcements.

The paper has studied trading patterns from Jan. 2008 to March 2014 and finds that “prices begin to move in the ‘correct’ direction about 30 minutes before the release time. The pre-announcement price drift accounts on average for about half of the total price adjustment.”

Translation: chronic insider trading, which until recently was an allegation that the serious outlets would relentless mock as another conspiracy by tinfoil hat fringe websites.

The paper also finds “strong evidence of pre-announcement drift” in ahead of releases such as the Conference Board's consumer confidence index; NAR existing home and pending home sales; preliminary GDP; Federal Reserve’s industrial production (yes, even Fed data has been leaked repeatedly); ISM manufacturing and non- manufacturing indexes, and countless other examples.

While the ECB does not blame the entire “drift” on leaks of insider information, saying instead that “the evidence suggests that the pre-announcement drift likely comes from a combination of information leakage and superior forecasting” it is clear what the real culprit is for outperformance ahead of major data release, and – spoiler alert – it isn't “superior forecasting.”