Stock Returns of Federal Reserve Officials

Abstract

This paper examines the trading behavior of members of the Federal Reserve’s Federal
Open Market Committee (FOMC). First, we calculate the financial market returns of
FOMC members relative to the overall market and examine if there is any evidence
of abnormal returns. Second, we test whether FOMC members exhibit evidence of
market timing around monetary policy announcements. We do not find any evidence
that FOMC officials select securities that earn abnormal returns. However, our results
regarding market timing are mixed. Though we do not find any evidence of security
selection or portfolio rebalancing with respect to monetary policy decisions, we do find
that stock sales by FOMC officials are typically succeeded by negative returns in the
overall stock market.

Keywords: FOMC, Abnormal returns, Investment behavior of elected officials

JEL Classification: E58, G14, D72