Monetary Momentum

51 Pages Posted: 5 Sep 2017 Last revised: 22 Sep 2020

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 3 versions of this paper

Date Written: September 22, 2020

Abstract

We document a large return drift around monetary policy announcements by the Federal Open Market Committee. Stock returns start drifting up 25 days before expansionary monetary policy surprises, whereas they decrease before contractionary surprises. The cumulative return difference across expansionary and contractionary policy decisions amounts to 2.5% until the day of the policy decision and continues to increase to more than 4.5% 15 days after the meeting. The drift is more pronounced during periods of high uncertainty, it is a market-wide phenomenon, it is present in all industries, many international equity markets, the US-dollar exchange rate and US treasuries. A similar pre-drift exists before ECB monetary policy decisions both for US but also European equity markets. The cumulative returns before FOMC meetings significantly predict the subsequent policy surprise.

Keywords: Return Drift, Monetary Policy, FOMC, Macro News

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

Suggested Citation

Neuhierl, Andreas and Weber, Michael, Monetary Momentum (September 22, 2020). Chicago Booth Research Paper No. 20-05, Fama-Miller Working Paper, University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2020-39, Available at SSRN: https://ssrn.com/abstract=3030126 or http://dx.doi.org/10.2139/ssrn.3030126

Andreas Neuhierl

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

St. Louis, MO
United States

Michael Weber (Contact Author)

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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