Is There a Measurable Placebo Effect in Policy Announcements?

This research investigates whether policy announcements produce a distinct “placebo” effect—an incremental same-day market reaction that cannot be fully explained by the news content itself or the time remaining until implementation. Drawing from both efficient market theory and behavioral economics, the paper examines whether the manner and timing of policy communication generate measurable effects on financial variables such as equity index returns, bond yields, and consumer confidence. Using a multi-country event panel with both positive and negative policy announcements, the study constructs an empirical model that converts lead time into a “behavioral salience weight” and compares how markets respond to anticipated versus unanticipated events.

The analysis blends theoretical rigor with behavioral nuance. Under the efficient markets hypothesis, only unanticipated news should move asset prices; however, the author posits that attention constraints, present bias, and framing effects cause agents to overweight near-term, salient information. By modeling this with an exponential “salience kernel,” the paper quantifies how immediacy amplifies perceived importance, leading to stronger same-day market reactions even when the underlying policy is known. Empirically, the findings reveal that equity markets display steep baseline sensitivity to policy surprises, while bond yields react more modestly. Importantly, unanticipated announcements show systematically more negative residuals—interpreted as a measurable “placebo” or behavioral effect—than anticipated ones.

Beyond its econometric contribution, the study offers practical insights for policymakers. It suggests that the timing and framing of policy communication can shape market outcomes independently of the policy content. When surprise and salience interact, even a neutral announcement may trigger volatility if revealed unexpectedly or framed sharply. The paper thus bridges classical theories of informational efficiency with contemporary behavioral insights, showing that policy effects are not purely informational but also cognitive and temporal—revealing how attention, timing, and human bias subtly yet powerfully influence financial transmission mechanisms.