The disappearing pre-FOMC announcement drift

Alexander Kurov; Marketa Halova Wolfe; Thomas Gilbert

doi:10.1016/j.frl.2020.101781

The disappearing pre-FOMC announcement drift

Financ Res Lett. 2021 May:40:101781. doi: 10.1016/j.frl.2020.101781. Epub 2020 Sep 30.

Authors

Alexander Kurov¹, Marketa Halova Wolfe², Thomas Gilbert³

Affiliations

¹ Department of Finance, John Chambers College of Business and Economics, West Virginia University, P.O. Box 6025, Morgantown, WV 26506 United States.
² Department of Economics, Skidmore College, Saratoga Springs, NY 12866, United States.
³ Department of Finance, Michael G. Foster School of Business, University of Washington, PACCAR Hall, Box 353226, Seattle, WA 98195, United States.

Abstract

Lucca and Moench (2015) document large average excess returns in U.S. equities before scheduled Federal Open Market Committee (FOMC) meetings from September 1994 to March 2011, leading to a puzzle not explained by standard asset pricing theory. We extend the sample to December 2019. We find that after first appearing before FOMC announcements accompanied by the Fed Chair press conferences, the pre-FOMC drift essentially disappeared after 2015 in both announcements accompanied by press conferences and announcements not accompanied by press conferences. We discuss a possible explanation for this change: reduced uncertainty.

Keywords: Announcements; Drift; FOMC; Press conferences.