The FOMC announcement returns on long-term US and German bond futures

Ivan Indriawan, Feng Jiao and Yiuman Tse

Journal of Banking & Finance, 2021, vol. 123, issue C

Abstract: We examine the impact of monetary policy announcements by the Federal Open Market Committee (FOMC) on long-term US and German bond futures. Using transaction-level data during the post-financial crisis period, we observe a sizable post-announcement drift in government bond markets. A trading strategy of investing in the market after expansionary shocks and shorting the market following contractionary surprises yields up to four times the Sharpe ratio of buy-and-hold investment. The post-FOMC announcement drift coincides with more informative order flows in the post-announcement period, and it persists for 15 days. Moreover, our study shows an absence of pre-FOMC announcement drift. Our findings shed some light on how the bond markets react to public news arrival.

Keywords: FOMC announcement; Government bond futures; Market efficiency; Return drift (search for similar items in EconPapers)
JEL-codes: E44 E58 G14 G15 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:123:y:2021:i:c:s0378426620302880

DOI: 10.1016/j.jbankfin.2020.106027

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