Equity Term Structure Response to FOMC Announcements

90 Pages Posted: 29 Apr 2021 Last revised: 21 Apr 2023

See all articles by Benjamin Golez

Benjamin Golez

University of Notre Dame

Ben Matthies

University of Notre Dame

Date Written: April 20, 2023


We study the response of the equity term structure to FOMC announcements using a high-frequency event study approach. We find that monetary policy surprises have opposite effects on short-term dividend strips and the long-term equity market. Following an unanticipated cut in the target rate, short-term dividend strip prices decrease while long-term equity prices increase on average. Furthermore, the short-term dividend strip return in the 30-minute window around each FOMC announcement positively predicts macroeconomic growth up to one-year ahead. We present a stylized framework which shows this pattern can arise when policy decisions signal information about current economic conditions.

Keywords: term structure, asset pricing, dividend strips, fed information

JEL Classification: E50, G10

Suggested Citation

Golez, Benjamin and Matthies, Ben, Equity Term Structure Response to FOMC Announcements (April 20, 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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