Investors could have profited from Federal Reserve policy announcements by gaining access to information ahead of public release, according to three Singapore-based economists in a new research paper.
Studying macroeconomic data releases between September 9, 1997, and June 30, 2013, the economists from Singapore Management University found that traders could have gained profits of between $14 million and $256 million from early access to Fed announcements.
"We find robust evidence of informed trading activities in major equity index futures and exchange traded funds (ETFs) during lockup periods ahead of monetary policy announcements by (the) FOMC (Federal Open Market Committee)," the authors Gennaro Bernile, Jianfeng Hu and Yuehua Tang concluded in their new paper entitled "Can information be locked up? Informed trading before macro-news announcements."
The so-called lockup period occurs when reporters inside the Fed's headquarters are given information 20 minutes ahead of the official announcement. In October 2013, the rules regarding these lockups were tightened, giving reporters just 10 minutes before the announcement. They also had to sign an obligation to hold the information in the room and were banned from bringing in electronic equipment or devices.
The three economists highlight the possibility that this information was leaked during these embargoed periods and used high-frequency data to investigate and conclude that there were "significant abnormal price run-ups."
The Fed, in a statement, said it has enhanced its procedures.
"The Federal Reserve in October 2013 enhanced its media release security procedures to incorporate additional controls in order to better protect the information against premature release. We review our processes and controls on an ongoing basis and make adjustments as necessary to address any issues," the central bank said.
The study's authors looked at the the E-mini S&P 500 futures contract, E-mini Nasdaq 100 futures, the SPDR S&P 500 ETF and the PowerShares QQQ ETF tracking the Nasdaq 100 index. During the times of the lockups periods, they say that both the E-mini S&P 500 futures' average abnormal order imbalance was around 8.4 percent to 9.5 percent, and its average abnormal price run-up was 20.5 basis points.
"Our analysis informs the ongoing policy debate surrounding lockup practices by testing whether macro-news lockups are associated with informed trading, consistent with information leakage," the reports said.
"Our results raise serious questions about the appropriateness of FOMC policy announcements' embargoes, either because information may directly leak from the news media with pre-release access or from other FOMC insiders with incentives to mimic such behavior."
The Singapore economists stress that they found no evidence of trading abnormalities during media lockups ahead of the Bureau of Economic Analysis' release of the gross domestic product figures and the Bureau of Labor Statistics' release of employment and inflation reports.
—CNBC's Eamon Javers contributed to this report.