Staff Reports
The Pre-FOMC Announcement Drift
September 2011 Number 512
Revised: August 2013
JEL classification: G10, G12, G15

Authors: David O. Lucca and Emanuel Moench

We document large average excess returns on U.S. equities in anticipation of monetary policy decisions made at scheduled meetings of the Federal Open Market Committee (FOMC) in the past few decades. These pre-FOMC returns have increased over time and account for sizable fractions of total annual realized stock returns. While other major international equity indices experienced similar pre-FOMC returns, we find no such effect in U.S. Treasury securities and money market futures. Other major U.S. macroeconomic new announcements also do not give rise to pre-announcement excess equity returns. Pre-FOMC returns are higher in periods when the slope of the Treasury yield curve is low, implied equity market volatility is high, and when past pre-FOMC returns have been high. We discuss challenges explaining these returns with standard asset pricing theory.

Available only in PDF pdf  64 pages / 1,240 kb
For a published version of this report, see David O. Lucca and Emanuel Moench, "The Pre-FOMC Announcement Drift," Journal of Finance 70, no. 1 (February 2015): 329-71.
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