Noisy FOMC Returns

47 Pages Posted: 14 Jun 2022

See all articles by Oliver Boguth

Oliver Boguth

Arizona State University (ASU) - Finance Department

Vincent Gregoire

HEC Montreal - Department of Finance

Charles Martineau

University of Toronto - Rotman School of Management and UTSC Management

Date Written: June 8, 2022

Abstract

FOMC announcements cause substantial trade volume in equity markets. Is such volume mirroring information flow? Using a new diagnostic to quantify information flow net of noise, we show equity prices following FOMC announcements are less informative about future indicative prices than those before announcements, suggesting that announcement returns essentially reflect noise. The necessary reversal of the noise is obscured by our finding that price informativeness remains low for about two weeks. Our findings have important implications for existing studies of equity returns around FOMC announcements: they cannot be interpreted as an efficient market transitioning to a new macroeconomic equilibrium.

Keywords: FOMC announcements, noise, price informativeness, price pressure

JEL Classification: E50, G12, G14

Suggested Citation

Boguth, Oliver and Gregoire, Vincent and Martineau, Charles, Noisy FOMC Returns (June 8, 2022). Available at SSRN: https://ssrn.com/abstract=4131740 or http://dx.doi.org/10.2139/ssrn.4131740

Oliver Boguth

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

Vincent Gregoire

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

Charles Martineau (Contact Author)

University of Toronto - Rotman School of Management and UTSC Management ( email )

105 St-George
Toronto, Ontario M5S3E6
Canada

HOME PAGE: http://charlesmartineau.com

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