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

42 Pages Posted: 3 Dec 2015 Last revised: 5 Aug 2018

Oliver Boguth

Arizona State University (ASU) - Finance Department

Vincent Gregoire

HEC Montreal - Department of Finance

Charles Martineau

University of Toronto

Date Written: August 1, 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. Correspondingly, 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 (August 1, 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

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

Charles Martineau (Contact Author)

University of Toronto ( email )

105 St-George
Toronto, Ontario M5S3E6
Canada

HOME PAGE: http://charlesmartineau.com

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