Abstract

http://ssrn.com/abstract=1115826
 
 

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The Greenspan Years: An Analysis of the Magnitude and Speed of the Equity Market Response to FOMC Announcements


Allan A. Zebedee


Clarkson University

Eric Bentzen


Copenhagen Business School

Peter Reinhard Hansen


European University Institute - Economics Department (ECO); University of Aarhus - CREATES

Asger Lunde


University of Aarhus - School of Economics and Management; CREATES


Financial Markets and Portfolio Management, Vol. 22, No.1, pp. 3-20, 2008

Abstract:     
We examine the impact of monetary policy on the S&P 500 using intraday data. The analysis shows an economically and statistically significant relationship between S&P 500 intraday returns and changes in the Fed funds target rate. The significance and magnitude of the response is dependent on whether the change was expected or unexpected. An expected change in the Fed funds target rate has no impact on prices in the broad equity market; however, an unexpected change of 25 basis points in the Fed funds target rate results in an approximate 48 basis points decline in the broad equity market's return. The speed of these market reactions is rapid with the equity market reaching a new equilibrium within 15 minutes.

Keywords: Monetary policy, Exchange traded funds, High-frequency data

JEL Classification: C22, G11, G12

Accepted Paper Series


Not Available For Download

Date posted: April 2, 2008  

Suggested Citation

Zebedee, Allan A. and Bentzen, Eric and Hansen, Peter Reinhard and Lunde, Asger, The Greenspan Years: An Analysis of the Magnitude and Speed of the Equity Market Response to FOMC Announcements. Financial Markets and Portfolio Management, Vol. 22, No.1, pp. 3-20, 2008. Available at SSRN: http://ssrn.com/abstract=1115826

Contact Information

Allan A. Zebedee (Contact Author)
Clarkson University ( email )
Potsdam, NY 13699-5780
United States
315.268.3890 (Phone)
Eric Bentzen
Copenhagen Business School ( email )
Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark
Peter Reinhard Hansen
European University Institute - Economics Department (ECO) ( email )
Villa San Paolo
Via della Piazzuola 43
50133 Florence
Italy
University of Aarhus - CREATES ( email )
School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark
Asger Lunde
University of Aarhus - School of Economics and Management ( email )
Aarhus
Denmark
CREATES ( email )
School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark
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