Fed Tails: FOMC Announcements and Stock Market Uncertainty

67 Pages Posted: 14 May 2019 Last revised: 30 Mar 2023

See all articles by Heiner Beckmeyer

Heiner Beckmeyer

University of Münster

Nicole Branger

University of Münster - Finance Center Muenster

Thomas Gruenthaler

Tilburg University - Tilburg University School of Economics and Management

Date Written: April 29, 2019

Abstract

Uncertainty and monetary policy decisions in the U.S. interact with one another. Contrary to the common notion that FOMC announcements resolve a non-trivial amount of economic uncertainty, we find that the announcement commands a sizable left-tail premium, which builds up a few days in advance. The dominant role of left-tail uncertainty is unique to FOMC announcements, the behavior varies over time, significantly predicts future rate decisions, and is confirmed through frequent discussions by FOMC members. We attribute the left-tail uncertainty premium to supply shocks in the market for crash insurance.

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 Gruenthaler, Thomas, Fed Tails: FOMC Announcements 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 Münster ( email )

Schlossplatz 2
Muenster, D-48143
Germany

HOME PAGE: http://heinerbeckmeyer.com

Nicole Branger

University of Münster - 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 Gruenthaler

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

HOME PAGE: http://https://sites.google.com/view/tgruenthaler

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