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

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: 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