Noisy FOMC Returns: Information, Price Pressure, and Post-Announcement Reversals

65 Pages Posted: 14 Jun 2022 Last revised: 6 Oct 2023

See all articles by Oliver Boguth

Oliver Boguth

Arizona State University (ASU) - Finance Department

Adlai J. Fisher

University of British Columbia (UBC) - Sauder School of Business

Vincent Gregoire

HEC Montreal - Department of Finance

Charles Martineau

University of Toronto - Rotman School of Management and UTSC Management

Date Written: October 5, 2023

Abstract

Extending methods from price-formation studies, this article shows that stock-market returns following FOMC announcements resemble noise or overreaction more than fundamentals. Predictive regressions estimate a 60% reversal of short-window event returns by announcement-cycle end. We argue that theories of announcement information (Ai and Bansal, 2018) and price pressure (Campbell, Grossman, and Wang, 1993) are jointly essential to understanding reversals, implying predictors that include VIX change, abnormal volume, and ETF flows. We document surging post-announcement trade volume, pinpoint intra-cycle return predictability, and disentangle effects of monetary policy surprises. FOMC announcements inform markets, but also trigger intense liquidity demands that impact prices.

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

JEL Classification: E50, G12, G14

Suggested Citation

Boguth, Oliver and Fisher, Adlai J. and Gregoire, Vincent and Martineau, Charles, Noisy FOMC Returns: Information, Price Pressure, and Post-Announcement Reversals (October 5, 2023). 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

Adlai J. Fisher

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
604-822-8331 (Phone)
604-822-4695 (Fax)

HOME PAGE: http://finance.sauder.ubc.ca/~fisher

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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