Fed Information Effects: Evidence from the Equity Term Structure

60 Pages Posted: 29 Apr 2021 Last revised: 7 Dec 2023

See all articles by Benjamin Golez

Benjamin Golez

University of Notre Dame

Ben Matthies

University of Notre Dame

Date Written: December 1, 2023

Abstract

Do investors interpret central bank target rate decisions as signals about the current state
of the economy? We study this question using a short-term equity asset that entitles the owner
to the near-term dividends of the aggregate stock market. We develop a stylized model of
monetary policy and the equity term structure and derive tests of Fed information effects using
the short-term asset announcement return. Consistent with the existence of information effects,
we find that the short-term asset return in a 30-minute window around FOMC announcements
loads positively on monetary policy surprises. Furthermore, the announcement return predicts
near-term macroeconomic growth.

Keywords: information effects, term structure, asset pricing

JEL Classification: E50, G10

Suggested Citation

Golez, Benjamin and Matthies, Ben, Fed Information Effects: Evidence from the Equity Term Structure (December 1, 2023). Available at SSRN: https://ssrn.com/abstract=3836206 or http://dx.doi.org/10.2139/ssrn.3836206

Benjamin Golez (Contact Author)

University of Notre Dame ( email )

256 Mendoza College of Business
Notre Dame, IN 46556-5646
United States
(574) 631-1458 (Phone)

HOME PAGE: http://business.nd.edu/BenGolez/

Ben Matthies

University of Notre Dame ( email )

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