EconPapers    
Economics at your fingertips  
 

Monetary Momentum

Andreas Neuhierl () and Michael Weber ()
Additional contact information
Andreas Neuhierl: University of Notre Dame

No 2020-39, Working Papers from Becker Friedman Institute for Research In Economics

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. The drift is more pronounced during periods of high uncertainty, it is a market-wide phenomenon, and it is present in all industries and many international equity markets. Standard returns factors and time-series momentum do not span the return drift around FOMC policy decisions. 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. The cumulative returns before FOMC meetings significantly predict the subsequent policy surprise.

Keywords: Return Drift; Monetary Policy; FOMC; Macro News (search for similar items in EconPapers)
JEL-codes: E31 E43 E44 E52 E58 G12 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2020
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://repec.bfi.uchicago.edu/RePEc/pdfs/BFI_WP_202039.pdf (application/pdf)

Related works:
Working Paper: Monetary Momentum (2018) Downloads
Working Paper: Monetary Momentum (2017) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bfi:wpaper:2020-39

Access Statistics for this paper

More papers in Working Papers from Becker Friedman Institute for Research In Economics Contact information at EDIRC.
Bibliographic data for series maintained by Toni Shears ().

 
Page updated 2021-02-25
Handle: RePEc:bfi:wpaper:2020-39