Fed information effects: Evidence from the equity term structure

Benjamin Golez and Ben Matthies

Journal of Financial Economics, 2025, vol. 165, issue C

Abstract: Do investors interpret central bank target rate decisions as signals about the current state of the economy? We study this question using a short-term equity asset that entitles the owner to the near-term dividends of the aggregate stock market. We develop a stylized model of monetary policy and the equity term structure and derive tests of Fed information effects using the short-term asset announcement return. Consistent with the existence of information effects, we find that the short-term asset return in a 30-minute window around FOMC announcements loads positively on monetary policy surprises. Furthermore, the announcement return predicts near-term macroeconomic growth.

Keywords: Information effects; Term structure; Asset pricing (search for similar items in EconPapers)
JEL-codes: E50 G10 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:165:y:2025:i:c:s0304405x24002113

DOI: 10.1016/j.jfineco.2024.103988

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