Federal Reserve Transparency and Aggregate Trading Around FOMC Meeting Days

Abstract

We find that abnormal cross-sectional volatility and trading volume around Federal Open Market Committee meeting days have increased over the past few decades, while these upward trends are not found for other macroeconomic announcements and randomly selected days. The evidence suggests that more extensive information about the future economic outlook is announced on FOMC meeting days as the Federal Reserve consistently improves transparency and communication. As a result, cross-sectional volatility and trading volume increase as the market reflects more flow of information announced on FOMC meeting days.

Keywords: Federal Reserve Transparency, Federal Reserve Communication, FOMC Meetings, Cross-Sectional Volatility, Trading Volume