Relief Rallies after FOMC Announcements as a Resolution of Uncertainty

Chen Gu, Alexander Kurov and Marketa Wolfe

Journal of Empirical Finance, 2018, vol. 49, issue C, 1-18

Abstract: We find substantial positive average stock returns after FOMC announcements accompanied by the release of the Summary of Economic Projections (SEP) and press conference by the Fed Chair. Both SEPs and press conferences contain new information that moves financial markets. We show that several measures of uncertainty are significantly higher on days of FOMC announcements accompanied by SEP and press conference than on announcement days without SEP and press conference. Controlling for changes in uncertainty measured by VIX changes, the positive unconditional mean returns after the FOMC announcements with SEP and press conference disappear. We also find that stocks correlated with market uncertainty shocks have higher returns on days of FOMC meetings with SEP and press conference. These results suggest that the positive post-announcement stock market returns are related to resolution of uncertainty.

Keywords: Summary of economic projections; Monetary policy; FOMC meetings; Communication; Stock returns; Uncertainty (search for similar items in EconPapers)
JEL-codes: E44 E52 E58 G14 G18 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:49:y:2018:i:c:p:1-18

DOI: 10.1016/j.jempfin.2018.08.003

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Journal of Empirical Finance is currently edited by R. T. Baillie, F. C. Palm, Th. J. Vermaelen and C. C. P. Wolff

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