Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/229430 
Year of Publication: 
2021
Series/Report no.: 
SAFE Working Paper No. 302
Publisher: 
Leibniz Institute for Financial Research SAFE, Frankfurt a. M.
Abstract: 
We identify a component of monetary policy news that is extracted from high-frequency changes in risky asset prices. These surprises, which we call "risk shifts", are uncorrelated, and therefore complementary, to risk-free rate surprises. We show that (i) risk shifts capture the lion's share of stock price movements around FOMC announcements; (ii) that they are accompanied by significant investor fund flows, suggesting that investors react heterogeneously to monetary policy news; and (iii) that price pressure amplifies the stock market response to monetary policy news. Our results imply that central bank information effects are overshadowed by short-term dynamics stemming from investor rebalancing activities and are likely to be more difficult to identify than previously thought.
Subjects: 
Monetary Policy Surprises
Equity Premium
Fund Flows
Portfolio Rebalancing
Price Pressures
JEL: 
G10
G12
E44
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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