Noisy FOMC Returns? Information, Price Pressure, and Post-Announcement Reversals
65 Pages Posted: 14 Jun 2022 Last revised: 8 Jul 2024
Date Written: October 5, 2023
Abstract
Extending methods from microstructure studies, we show that stock-market prices following FOMC announcements appear "noisy". Standard predictive regressions confirm significant reversal of event-window returns by announcement-cycle end. Consistent with theories of announcement information and price pressure, reversal predictors include VIX changes, abnormal volume, and ETF flows. We further document surging post-announcement trade volume, pinpoint intra-cycle return predictability, and show sustained effects of monetary policy surprises on post-event price dynamics. FOMC announcements inform markets but also trigger intense liquidity demands that impact prices, highlighting the importance of connecting public information to price pressure in future theories.
Keywords: JEL Classification: E50, G12, G14 price informativeness, price pressure, FOMC announcements, monetary policy surprises
JEL Classification: E50, G12, G14
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