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Shaping Expectations and Coordinating Attention: The Unintended Consequences of FOMC Press Conferences

55 Pages Posted: 3 Dec 2015 Last revised: 25 Jan 2018

Oliver Boguth

Arizona State University (ASU) - Finance Department

Vincent Gregoire

University of Melbourne - Department of Finance

Charles Martineau

Rotman School of Management and UTSC

Date Written: January 24, 2018

Abstract

In an effort to increase transparency, the Chair of the Federal Reserve now holds a press conference following some, but not all, FOMC announcements. Evidence from financial markets shows that investors lower their expectations of important decisions on days without press conferences and that these announcements convey less price-relevant information. Using different proxies, we show that investors pay more attention to upcoming announcements with press conferences. This coordination of attention can reduce welfare in models of the social value of public information. Consistent with theories of investor attention, the market risk premium is larger on days with press conferences.

Keywords: Federal Reserve, Press Conferences, Transparency, Uncertainty, Attention, Risk Premium

JEL Classification: G10, G14, G18, E58

Suggested Citation

Boguth, Oliver and Gregoire, Vincent and Martineau, Charles, Shaping Expectations and Coordinating Attention: The Unintended Consequences of FOMC Press Conferences (January 24, 2018). Melbourne Business School, 2016 Financial Institutions, Regulation & Corporate Governance (FIRCG) Conference; 2016 Financial Markets and Corporate Governance. Available at SSRN: https://ssrn.com/abstract=2698477 or http://dx.doi.org/10.2139/ssrn.2698477

Oliver Boguth

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

Vincent Gregoire

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

Charles Martineau (Contact Author)

Rotman School of Management and UTSC ( email )

105 St-George
Toronto, Ontario M5S3E6
Canada

HOME PAGE: http://charlesmartineau.com

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