Unconventional Monetary Policy and the Behavior of Shorts

46 Pages Posted: 28 Nov 2017 Last revised: 27 Nov 2019

See all articles by Thomas H. McInish

Thomas H. McInish

University of Memphis - Fogelman College of Business and Economics

Christopher J. Neely

Federal Reserve Bank of St. Louis - Research Division

Jade Planchon

affiliation not provided to SSRN

Date Written: 2017-10-27

Abstract

In November 2008, the Federal Reserve announced the first of a series of unconventional monetary policies, which would include asset purchases and forward guidance, to reduce long-term interest rates. We investigate the behavior of shorts, considered sophisticated investors, before and after a set of these unconventional monetary policy announcements that spot bond markets did not fully anticipate. Short interest in agency securities systematically predicts bond price changes and other asset returns on the days of monetary announcements, particularly when growth or monetary news is released, indicating shorts correctly anticipated these surprises. Shorts also systematically adjusted their positions after announcements in the direction of the announcement surprise when the announcement released growth news, suggesting that shorts interpreted monetary events to imply further yield changes in the same direction.

Keywords: Quantitative Easing, Treasury bond short interest, Monetary Policy, Large-Scale Asset Purchases (LSAP), Agency securities, Treasury securities, Great Recession

JEL Classification: E4, E44, E52, G01, G18

Suggested Citation

McInish, Thomas H. and Neely, Christopher J. and Planchon, Jade, Unconventional Monetary Policy and the Behavior of Shorts (2017-10-27). FRB St. Louis Working Paper No. 2017-31, Available at SSRN: https://ssrn.com/abstract=3078551 or http://dx.doi.org/10.20955/wp.2017.031

Thomas H. McInish (Contact Author)

University of Memphis - Fogelman College of Business and Economics ( email )

Memphis, TN 38152
United States
901-678-4662 (Phone)
901-678-3006 (Fax)

Christopher J. Neely

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
Saint Louis, MO 63011
United States
314-444-8568 (Phone)
314-444-8731 (Fax)

HOME PAGE: http://www.stls.frb.org/research/econ/cneely/

Jade Planchon

affiliation not provided to SSRN

No Address Available

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