Monetary Momentum

Andreas Neuhierl and Michael Weber

No 24748, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We document a large return drift around monetary policy announcements by the Federal Open Market Committee (FOMC). 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 decision and continues to increase to more than 4.5% 15 days after the meeting. Standard returns factors and time-series momentum do not span the return drift around FOMC policy decisions. The return drift is a market-wide phenomenon and holds for all industries and many international equity markets. 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.

JEL-codes: E31 E43 E44 E52 E58 G12 (search for similar items in EconPapers)
Date: 2018-06
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: AP ME
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Related works:
Working Paper: Monetary Momentum (2020)
Working Paper: Monetary Momentum (2017)
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