Relief Rallies after FOMC Announcements as a Resolution of Uncertainty

51 Pages Posted: 16 Jul 2016 Last revised: 22 Sep 2018

See all articles by Chen Gu

Chen Gu

Shanghai Business School - Research Center of Finance

Alexander Kurov

West Virginia University - College of Business & Economics

Marketa Wolfe

Skidmore College - Department of Economics

Date Written: September 11, 2018

Abstract

We find substantial positive average stock returns after FOMC announcements accompanied by the release of the Summary of Economic Projections (SEP) and press conference by the Fed Chair. Both SEPs and press conferences contain new information that moves financial markets. We show that several measures of uncertainty are significantly higher on days of FOMC announcements accompanied by SEP and press conference than on announcement days without SEP and press conference. Controlling for changes in uncertainty measured by VIX changes, the positive unconditional mean returns after the FOMC announcements with SEP and press conference disappear. We also find that stocks correlated with market uncertainty shocks have higher returns on days of FOMC meetings with SEP and press conference. These results suggest that the positive post-announcement stock market returns are related to resolution of uncertainty.

Keywords: Monetary policy, FOMC meetings, Communication, Stock returns, Uncertainty

JEL Classification: E44, E52, E58, G14, G18

Suggested Citation

Gu, Chen and Kurov, Alexander and Wolfe, Marketa, Relief Rallies after FOMC Announcements as a Resolution of Uncertainty (September 11, 2018). Journal of Empirical Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2810262 or http://dx.doi.org/10.2139/ssrn.2810262

Chen Gu

Shanghai Business School - Research Center of Finance ( email )

Shanghai
China

Alexander Kurov (Contact Author)

West Virginia University - College of Business & Economics ( email )

P.O. Box 6025
Morgantown, WV 26506
United States

Marketa Wolfe

Skidmore College - Department of Economics ( email )

815 N Broadway
Saratoga Springs, NY 12866
United States
+1-518-580-8374 (Phone)

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