The Puzzling Pre-FOMC Announcement “Drift”

David Lucca and Emanuel Moench

No 20120711, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: For many years, economists have struggled to explain the ?equity premium puzzle??the fact that the average return on stocks is larger than what would be expected to compensate for their riskiness. In this post, which draws on our recent New York Fed staff report, we deepen the puzzle further. We show that since 1994, more than 80 percent of the equity premium on U.S. stocks has been earned over the twenty-four hours preceding scheduled Federal Open Market Committee (FOMC) announcements (which occur only eight times a year)?a phenomenon we call the pre-FOMC announcement ?drift.?

Keywords: stock market; equity premium puzzle; FOMC (search for similar items in EconPapers)
JEL-codes: E5 G1 (search for similar items in EconPapers)
Date: 2012-07-11
New Economics Papers: this item is included in nep-mac
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