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The Greenspan Years: An Analysis of the Magnitude and Speed of the Equity Market Response to FOMC AnnouncementsAllan A. ZebedeeClarkson University Eric BentzenCopenhagen Business School Peter Reinhard HansenEuropean University Institute - Economics Department (ECO); University of Aarhus - CREATES Asger LundeUniversity 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 SeriesDate posted: April 2, 2008Suggested CitationContact Information
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