The Fed Call: FOMC Announcement and Stock Market Uncertainty

45 Pages Posted: 14 May 2019 Last revised: 20 May 2019

See all articles by Heiner Beckmeyer

Heiner Beckmeyer

University of Muenster - Finance Center Muenster

Nicole Branger

University of Muenster - Finance Center Muenster

Thomas Grünthaler

University of Muenster - Finance Center Muenster

Date Written: April 29, 2019

Abstract

We empirically study the behavior of stock market uncertainty around U.S. monetary policy decisions using high-frequency option quotes. We find that FOMC announcements trigger sudden and large movements in uncertainty, with highly significant drops for different price levels and horizons of up to one year. Uncertainty in the tails builds up remarkably before the announcements. While the increase is largely resolved for left tail uncertainty (bad economic states) after the Fed announces its decision, the elevation persists for right tail uncertainty (good economic states). This is especially true when considering announcements in which the committee cut the short-rate, surprising monetary policy decisions were taken, a press conference was held, or the primary information conveyed concerned the economic outlook. We coin this effect of FOMC announcements the "Fed Call".

Keywords: Macroeconomic News Announcements, Monetary Policy Decisions, FOMC, Stock Market Uncertainty, Jump Risks, Volatility Risks, Option-Implied Information, High-Frequency Options Data

JEL Classification: E44, E52, G12, G18

Suggested Citation

Beckmeyer, Heiner and Branger, Nicole and Grünthaler, Thomas, The Fed Call: FOMC Announcement and Stock Market Uncertainty (April 29, 2019). Available at SSRN: https://ssrn.com/abstract= or http://dx.doi.org/10.2139/ssrn.3379561

Heiner Beckmeyer (Contact Author)

University of Muenster - Finance Center Muenster ( email )

Schlossplatz 2
Muenster
Germany

Nicole Branger

University of Muenster - Finance Center Muenster ( email )

Universitatsstr. 14-16
Muenster, 48143
Germany
+49 251 83 29779 (Phone)
+49 251 83 22867 (Fax)

HOME PAGE: http://www.wiwi.uni-muenster.de/fcm/fcm/das-finance-center/details.php?weobjectID=162

Thomas Grünthaler

University of Muenster - Finance Center Muenster ( email )

Universitätsstraße 14-16
Muenster, D-48143
Germany

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