The Disappearing Pre-FOMC Announcement Drift

11 Pages Posted: 7 Mar 2018 Last revised: 5 Jun 2018

See all articles by Thomas Gilbert

Thomas Gilbert

University of Washington - Department of Finance and Business Economics

Alexander Kurov

West Virginia University - College of Business & Economics

Marketa Wolfe

Skidmore College - Department of Economics

Date Written: March 6, 2018

Abstract

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

Gilbert, Thomas and Kurov, Alexander and Wolfe, Marketa, The Disappearing Pre-FOMC Announcement Drift (March 6, 2018). Available at SSRN: https://ssrn.com/abstract=3134546 or http://dx.doi.org/10.2139/ssrn.3134546

Thomas Gilbert

University of Washington - Department of Finance and Business Economics ( email )

Box 353200
Seattle, WA 98195
United States
206-616-7184 (Phone)

HOME PAGE: http://faculty.washington.edu/gilbertt/

Alexander Kurov

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

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

Marketa Wolfe (Contact Author)

Skidmore College - Department of Economics ( email )

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

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