The Disappearing Pre-FOMC Announcement Drift
11 Pages Posted: 7 Mar 2018 Last revised: 5 Jun 2018
Date Written: March 6, 2018
Lucca and Moench (2015) document large average excess returns in the S&P500 index before scheduled Federal Open Market Committee (FOMC) meetings from September 1994 to March 2011, leading to a puzzle not explained by standard asset pricing theory. We replicate and then extend their analysis to December 2017. We find that U.S. and major international equity indices did not experience statistically significant average excess returns in the more recent period; the puzzle has, therefore, disappeared. We discuss possible explanations for this change, with the most plausible one being that the drift has been arbitraged away since its discovery.
Keywords: FOMC Announcements, Price Drift, Stock Market
JEL Classification: E44, G14
Suggested Citation: Suggested Citation