FOMC Announcements and Predictable Returns

42 Pages Posted: 16 Dec 2014 Last revised: 11 Sep 2017

See all articles by Mihail Velikov

Mihail Velikov

Federal Reserve Bank of Richmond

Date Written: September 10, 2017


I document that the high market returns and good performance of the CAPM associated with FOMC meetings are concentrated on meetings with unanticipated cuts to the Fed funds target rate. Moreover, stocks that perform poorly around meetings with surprise cuts subsequently outperform the market. This behavior generates robust predictability in the cross-section of stock returns. Stocks whose returns have positive covariances with surprise changes to interest rates carry a premium in their future returns. These covariances, however, are transient, indicating short-lived interest rate exposure for individual firms.

Keywords: Asset Pricing, Macroeconomics, Anomalies, Monetary Policy, Predictability

JEL Classification: G11, G12, E52

Suggested Citation

Velikov, Mihail, FOMC Announcements and Predictable Returns (September 10, 2017). Available at SSRN: or

Mihail Velikov (Contact Author)

Federal Reserve Bank of Richmond ( email )

502 S. Sharp Street
Baltimore, MD 21201
United States

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