The Cross-Section of Monetary Policy Announcement Premium

36 Pages Posted: 1 Mar 2019 Last revised: 25 May 2019

See all articles by Hengjie Ai

Hengjie Ai

University of Minnesota - Twin Cities - Carlson School of Management

Leyla Jianyu Han

University of Hong Kong

Xuhui (Nick) Pan

University of Oklahoma

Lai Xu

Syracuse University

Date Written: May 23, 2019

Abstract

We show that monetary policy announcements require a significant risk compensation in the cross-section of equity returns. Empirically, we use the expected reduction in implied volatility after FOMC announcements to measure the sensitivity of stock returns with respect to monetary policy announcements and find a significant monetary policy announcement premium. We develop a model of macroeconomic announcements to account for the cross-section of the monetary policy announcement premium in equity returns.

Keywords: FOMC announcement, implied volatility, cross-section of equity returns

JEL Classification: D81, G12

Suggested Citation

Ai, Hengjie and Han, Leyla Jianyu and Pan, Xuhui (Nick) and Xu, Lai, The Cross-Section of Monetary Policy Announcement Premium (May 23, 2019). Available at SSRN: https://ssrn.com/abstract=3338889 or http://dx.doi.org/10.2139/ssrn.3338889

Hengjie Ai (Contact Author)

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

Leyla Jianyu Han

University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Hong Kong
Hong Kong

Xuhui (Nick) Pan

University of Oklahoma ( email )

307 W Brooks
Norman, OK 73019
United States

Lai Xu

Syracuse University ( email )

900 S. Crouse Avenue
Syracuse, NY 13244-2130
United States

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