The pre-FOMC announcement drift: short-lived or long-lasting? Evidence from financial and volatility markets

Katja Ignatieva and Kazuhiko Ohashi

Applied Economics, 2025, vol. 57, issue 17, 2021-2037

Abstract: We examine the effects of Federal Open Market Committee (FOMC) announcements accompanied by press conferences (PC) on both financial and volatility markets. We find a pre-FOMC announcement drift, signifying positive excess returns on equities prior to the FOMC announcement. However, the influence of the FOMC-PC announcements is short-lived, becoming insignificant shortly after the disclosure. This contrasts with findings from Lucca and Moench (2015), who report that the FOMC announcement’s impact is persistent (or long-lasting) in their studied timeframe. Furthermore, we identify a significantly negative return of the VIX both before and after the FOMC announcement. This contrasts with the transient nature of stock returns, suggesting an evolving relationship between stock returns and VIX movements. To exploit the FOMC announcement drift, we construct a profitable trading strategy but note that such coexistence of the profitable trading strategy with the short lived impact by FOMC announcement raises a concern whether FOMC justifies a large price movement around FOMC announcement.

Date: 2025
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DOI: 10.1080/00036846.2024.2322573

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