The Cross-Section of Monetary Policy Announcement Premium
36 Pages Posted: 1 Mar 2019 Last revised: 25 May 2019
Date Written: May 23, 2019
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: Suggested Citation