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Zoom URL: https://uni-frankfurt.zoom.us/j/93218215141?pwd=dENWRmsrbVBKTXcrZmJmWE9HTm5JQT09
Abstract:
We document a large return drift around monetary policy announcements by the Federal Open Market Committee. Stock returns start drifting up 25 days before expansionary monetary policy surprises, whereas they decrease before contractionary surprises. The cumulative return difference across expansionary and contractionary policy decisions amounts to 2.5% until the day of the policy decision and continues to increase to more than 4.5% 15 days after the meeting. The drift is more pronounced during periods of high uncertainty, it is a market-wide phenomenon, it is present in all industries, many international equity markets, the US-dollar exchange rate and US treasuries. A similar pre-drift exists before ECB monetary policy decisions both for US but also European equity markets. The cumulative returns before FOMC meetings significantly predict the subsequent policy surprise.