Monetary Momentum

Andreas Neuhierl, Michael Weber and Michael Weber
Authors registered in the RePEc Author Service: Michael Weber

No 6648, CESifo Working Paper Series from CESifo

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.

Keywords: return drift; policy speeches; expected returns; macro news (search for similar items in EconPapers)
JEL-codes: E31 E43 E44 E52 E58 G12 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Monetary Momentum (2020)
Working Paper: Monetary Momentum (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_6648

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