Pre-FOMC Announcement Relief

61 Pages Posted: 14 Dec 2018

Date Written: November 2018


We show that the pre-FOMC announcement drift in equity returns occurs mostly in periods of high market uncertainty or risk premium. Specifically, this abnormal return is explained by a significant reduction in the risk premium (implied volatility and variance risk premium) prior to the announcement, but only when the risk premium is high, e.g., when it is above its median. Likewise, the magnitude of the FOMC Cycle and other related patterns varies with uncertainty and risk premium. Market uncertainty measures are persistent and are not related to policy uncertainty or expectations. Markets become only marginally stressed in the days prior to the announcement and changes in uncertainty appear to be of lower frequency. We also explain why recent studies suggest that the pre-FOMC drift might have disappeared in the past decade, as this moderation is due to time variation that was also present in older data. Additionally, CAPM only works on FOMC dates when the risk premium is high, e.g., implied vol above its prior median level. The results are robust to different samples and measures of risk premium and uncertainty.

Keywords: Asset Prices; Monetary Policy; FOMC; Pre-Announcement Drift; Risk Premium; Uncertainty

JEL Classification: G12; G14; G18; E52

Suggested Citation

Martello, Vitor and Ribeiro, Ruy, Pre-FOMC Announcement Relief (November 2018). Available at SSRN: or

Vitor Martello

Parcitas Investmentos ( email )


Ruy Ribeiro (Contact Author)

Insper ( email )

R Quata 300
Sao Paulo, 04542-030

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