Persistence-Based Capital Allocation along the FOMC Cycle

Fulvio Ortu (), Pietro Reggiani () and Federico Severino
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Fulvio Ortu: Department of Finance and IGIER, Università Bocconi, Milan, Italy
Pietro Reggiani: Finance Department, New York University, USA
Federico Severino: Department of Finance, Insurance and Real Estate, Université Laval, Québec, Canada

Quarterly Journal of Finance (QJF), 2025, vol. 15, issue 01, 1-35

Abstract: The Federal Reserve holds Federal Open Market Committee and Board Meetings, with six- and two-week cadence, respectively. The financial literature associates these meetings with stock market cycles of corresponding frequencies. These can be exploited through a portfolio strategy that invests in the market at alternate weeks. Since this strategy lacks theoretical foundations, we provide a rigorous framework for detecting market cycles and determining optimal portfolios that profit from them. We isolate uncorrelated components of stock returns associated with two- and six-week cycles, we replicate them and design an optimal portfolio that maximizes the investor’s wealth by properly exploiting such cyclicality.

Keywords: Fed cycles; return persistence; stock market cycles; optimal portfolios (search for similar items in EconPapers)
JEL-codes: E32 G11 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1142/S2010139225500053

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