Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/171112
Authors: 
Neuhierl, Andreas
Weber, Michael
Year of Publication: 
2017
Series/Report no.: 
CESifo Working Paper 6648
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 move and continues to increase to more than 4.5% 15 days after the meeting. The return drift is a market-wide phenomenon, holds for all industries, and many international equity markets. In the cross section of stocks, size, value, profitability, and investment do not exhibit differential return drifts. Momentum is an exception, because past losers plummet around contractionary monetary policy surprises. A simple trading strategy exploiting the drift around FOMC meetings increases Sharpe ratios relative to a buy-and-hold investment by a factor of 4.
Subjects: 
return drift
policy speeches
expected returns
macro news
JEL: 
E31
E43
E44
E52
E58
G12
Document Type: 
Working Paper

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