Traders may be using leaked official data to make money ahead of the release of UK economic statistics, a new analysis suggests.
Futures on UK government bonds, which rise or fall depending on the outlook for the UK economy, regularly move sharply in the 24 hours before the release of economic data such as GDP and unemployment rates, suggesting that some people may know the figures in advance.
Between April 2011 and December 2016, UK government bond futures, on average, correctly anticipated the rise or fall that was later announced in official figures, according to an analysis for The Wall Street Journal by Alexander Kurov, associate professor of finance at West Virginia University.
In 59.5 per cent of cases where futures moved after unexpected economic data was released, a shift in the correct direction had already started in the hour before the official announcement, Professor Kurov found.
“Based on what I see in the data in this case, it is very unlikely that we are looking at a random pattern,” Professor Kurov told the Journal.
Though the movements were tiny, the vast amounts of money traded on UK government bonds each day mean that the changes were equivalent to tens of millions of pounds in value.
Several influential figures, including former Bank of England deputy governor Charlie Bean have been highly critical of the widespread pre-release of economic data to a officials, something which they say increases the likelihood of leaks.
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In a 2016 review, Mr Bean highlighted a “laxity in compliance” with regard to access to data. He recommended only the absolute minimum number of people are distributed the information ahead of its release. More than 100 people currently receive pre-released data on unemployment, the ONS told the Journal.
In the US, such market-sensitive information is physically delivered to the chairman of the Council of Economic Advisers who personally relays it to the president. Professor Kurov’s work showed that “price drift” in the correct direction was far less common before US releases.
There may be other reasons why markets move ahead of embargoed data, such as private companies collecting their own data, Professor Kurov said.