Stock Returns Over the FOMC Cycle
61 Pages Posted: 8 Nov 2015 Last revised: 9 Jan 2019
Date Written: February 12, 2018
We document that since 1994 the equity premium realized in the US and worldwide is earned entirely in weeks 0, 2, 4 and 6 in FOMC cycle time, i.e., in even weeks starting from the last FOMC meeting. We tie this fact causally to the Fed by studying intermeeting target changes, Fed funds futures, and internal meetings of the Board of Governors. The Fed has affected the stock market via unexpectedly accommodating policy, leading to large reductions in the equity risk premium. Evidence suggests systematic informal communication of Fed officials with the media and financial sector as a possible channel through which news about monetary policy has reached the market.
Keywords: Monetary Policy, Federal Reserve, FOMC, Communication, Stock Returns
JEL Classification: E52, G12
Suggested Citation: Suggested Citation