62 Pages Posted: 7 Sep 2011 Last revised: 1 Aug 2013
Date Written: July 26, 2013
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 major U.S. macroeconomic news announcements also do not give rise to pre-announcement excess 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 at explaining these returns with standard asset pricing theory.
Keywords: FOMC announcements, equity premium, anomaly
JEL Classification: G10, G12, G15
Suggested Citation: Suggested Citation
Lucca, David O. and Moench, Emanuel, The Pre-FOMC Announcement Drift (July 26, 2013). Journal of Finance, Forthcoming; FRB of New York Staff Report No. 512 . Available at SSRN: https://ssrn.com/abstract=1923197 or http://dx.doi.org/10.2139/ssrn.1923197