We imagine a price follows supply and demand. But a price also follows what we believe: it embeds expectations. That is why an announcement (even tiny in amount) can move a large price, if it reveals a credible intention. The announcement effect is that moment when the signal weighs more than the sum. This concept lays bare its mechanism and its limits.
1 The definition
The signal, not the amount.
The definition
Information that moves a price
The announcement effect is a market's reaction to information (a decision, an intention, a guarantee) rather than to an actual flow of trades. An actor announces it will act; the price moves at once, before any operation. It is not the quantity traded that changed, but what participants now believe likely. The amount at stake may be trivial: what counts is the message it carries.
2 Why it works
A price embeds the anticipated future.
The mechanism
The market buys an intention
A price does not express only the balance of the moment: it incorporates everything actors believe they know about the future. A credible announcement changes those expectations: each one adjusts their position according to what they think others will do, and since all react at once, the price moves immediately. Information becomes the driver, before the first trade. It is expectation, not flow, that sets the new price.
3 The free promise
Credible as long as it is not called.
The key property
It only needs to be believed to act
A signal's strength lies in its credibility, not its cost. A guarantee (a floor, a support, a commitment) acts merely because it is believed: if actors are reassured, the one who promised need spend almost nothing. The promise is therefore free as long as no one asks for it to be honoured. It is a very efficient economy of the signal: few means, much effect, as long as trust holds.
The idea to keep
The market reacts not to what you spend, but to what you reveal. A credible promise works for free; it is only paid on the day it is tested.
4 The limits
A signal does not replace the fundamentals.
The trade-off
Addiction and costly execution
The announcement effect has two weaknesses. First, execution: if expectations turn, one must move from words to deeds, and the commitment, free on paper, becomes real spending. Second, addiction: relying on the signal, the market demands ever more, and each new announcement must be stronger than the last to produce the same effect. A signal buys time; it does not treat the deep causes. To confuse the two is to mistake relief for a cure.
5 Takeaways
The essentials.
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The signal: information or an intention that moves a price, independent of the flow.
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The mechanism: a price embeds expectations; the market buys what it believes likely.
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The free part: a credible promise acts without being executed, as long as trust holds.
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The limit: costly execution and addiction; the signal does not replace the fundamentals.
This concept sheds light on an analysis
First published: August 21, 2026