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The Pre-FOMC Announcement DriftDavid O. LuccaFederal Reserve Banks - Federal Reserve Bank of New York Emanuel MoenchFederal Reserve Bank of New York May 1, 2013 FRB of New York Staff Report No. 512 Abstract: We document large average excess returns on U.S. equities in anticipation of monetary policy decisions made at scheduled meetings of the Federal Open Market Committee (FOMC) in the past few decades. These pre-FOMC returns have increased over time and account for sizable fractions of total annual realized stock returns. While other major international equity indices experienced similar pre-FOMC returns, we find no such effect in U.S. Treasury securities and money market futures. Other U.S. macroeconomic news announcements also do not give rise to pre-announcement equity returns. Pre-FOMC returns are higher in periods when the slope of the Treasury yield curve is low, implied equity market volatility is high, and when past pre-FOMC returns have been high. We discuss challenges explaining these returns with standard asset pricing theory.
Number of Pages in PDF File: 66 Keywords: FOMC announcements, equity premium, anomaly JEL Classification: G10, G12, G15 working papers seriesDate posted: September 7, 2011 ; Last revised: May 7, 2013Suggested CitationContact Information
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