Monetary Momentum

59 Pages Posted: 25 Jun 2018 Last revised: 14 Feb 2021

See all articles by Andreas Neuhierl

Andreas Neuhierl

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

Michael Weber

University of Chicago - Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: June 2018

Abstract

We document a large return drift around monetary policy announcements by the Federal Open Market Committee (FOMC). 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. Standard returns factors and time-series momentum do not span the return drift around FOMC policy decisions. The return drift is a market-wide phenomenon and holds for all industries and many international equity markets. A simple trading strategy exploiting the drift around FOMC meetings increases Sharpe ratios relative to a buy-and-hold investment by a factor of 4.

Suggested Citation

Neuhierl, Andreas and Weber, Michael, Monetary Momentum (June 2018). NBER Working Paper No. w24748, Available at SSRN: https://ssrn.com/abstract=3202052

Andreas Neuhierl (Contact Author)

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

St. Louis, MO
United States

Michael Weber

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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