When No News is Good News – The Decrease in Investor Fear after the FOMC Announcement

41 Pages Posted: 17 Nov 2014 Last revised: 18 Nov 2014

See all articles by Adrian Fernandez-Perez

Adrian Fernandez-Perez

Auckland University of Technology

Bart Frijns

Auckland University of Technology - Faculty of Business & Law

Alireza Tourani-Rad

Auckland University of Technology - Faculty of Business & Law

Date Written: November 16, 2014

Abstract

This paper examines the impact of FOMC announcements on the intraday behavior of the VIX and VIX futures. We find that the VIX and the VIX futures start to decline immediately after the FOMC announcement, and this decline persists for about 45 minutes after the announcement. The VIX declines by about 3% on announcement days, whereas the nearest term VIX futures contract declines by about 1.40% around the announcement. We further note that the decline in the VIX and VIX futures is inversely related to the increase in realized volatility around the FOMC announcement. We show that on days with an FOMC announcement, a trading strategy, going short on the VIX futures at the start of the day and closing the position at the end of the same day, yields a return of about 10% p.a.

Keywords: VIX, VIX Futures, FOMC Announcement, Intraday data

JEL Classification: G13

Suggested Citation

Fernandez-Perez, Adrian and Frijns, Bart and Tourani-Rad, Alireza, When No News is Good News – The Decrease in Investor Fear after the FOMC Announcement (November 16, 2014). Available at SSRN: https://ssrn.com/abstract=2525991 or http://dx.doi.org/10.2139/ssrn.2525991

Adrian Fernandez-Perez

Auckland University of Technology ( email )

AUT City Campus
Private Bag 92006
Auckland, 1142
New Zealand
+64 9 921 9999 (Phone)
+64 9 921 9940 (Fax)

Bart Frijns (Contact Author)

Auckland University of Technology - Faculty of Business & Law ( email )

3 Wakefield Street
Private Bag 92006
Auckland Central 1020
New Zealand

Alireza Tourani-Rad

Auckland University of Technology - Faculty of Business & Law ( email )

3 Wakefield Street
Private Bag 92006
Auckland Central 1020
New Zealand

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