Walking on thin ice: Market quality around FOMC announcements

This paper examines market quality for the E-Mini S&P 500 futures around Federal Reserve announcements. I document that the release of the Federal Open Market Committee (FOMC) statement induces significantly "higher than normal" volatility and trading volume. The bid ask spread is significantly higher in the minutes preceding the release, but it returns to its "normal" level immediately after the release. Using order-level data, I show that market depth behind the best bid and ask quotes is much lower on event days, hitting an intraday low immediately before the FOMC release at values on average about 20 percent of the level observed in control days. (C) 2015 Elsevier B.V. All rights reserved.