Monetary Policy Communication, Policy Slope, and the Stock Market

89 Pages Posted: 18 Mar 2016 Last revised: 31 Jul 2019

See all articles by Andreas Neuhierl

Andreas Neuhierl

Washington University in St. Louis - John M. Olin Business School

Michael Weber

University of Chicago - Finance

Multiple version iconThere are 4 versions of this paper

Date Written: July 2019

Abstract

The slope factor is constructed from changes in federal funds futures of different horizons and predicts stock returns at the weekly frequency: faster policy easing positively predicts returns. It contains information about the speed of future monetary policy tightening and loosening, and predicts changes in interest rates and forecast revisions of professional forecasters. The tone of speeches by FOMC members correlates with the slope factor. The predictive power concentrates in times of high uncertainty in line with the pre-FOMC announcement drift. Our findings show the path of interest rates matters for asset prices, and monetary policy affects asset prices continuously.

Keywords: Policy Speeches, Macro News, Return Predictability, Expected Returns

JEL Classification: E31, E43, E44, E52, E58, G12

Suggested Citation

Neuhierl, Andreas and Weber, Michael, Monetary Policy Communication, Policy Slope, and the Stock Market (July 2019). Chicago Booth Research Paper No. 17-16, Fama-Miller Working Paper, Available at SSRN: https://ssrn.com/abstract=2748290 or http://dx.doi.org/10.2139/ssrn.2748290

Andreas Neuhierl (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

St. Louis, MO
United States

Michael Weber

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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