Shaping Expectations and Coordinating Attention: The Unintended Consequences of FOMC Press Conferences

Boguth, Oliver; Grégoire, Vincent; Martineau, Charles

doi:10.1017/s0022109018001357

Cited by 88 publications

(32 citation statements)

References 56 publications

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“…It explains the pre-FOMC drift's timing that occurs 24 hours before announcements when private information is probably known way before. Third, I document the market uncertainty decreases significantly only before announcements with press conferences since April 2011, which explains the two distinctive patterns to equity returns found in Boguth, Gregoire, and Martineau (2019) and agrees with my model. Fourth, the sign of the pre-FOMC drift in the model depends on whether the asset is risky or a hedge.…”

Section: Introductionsupporting

confidence: 83%

The Pre-FOMC Announcement Drift and Private Information: Kyle Meets Macro-Finance

Ying

2020

SSRN Journal

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This paper proposes and tests the private information explanation for the time series of pre-FOMC announcement drift. I document the informed trading is in the same direction of the realized returns in the 24-hour window before FOMC announcements, coinciding with the pre-FOMC uncertainty reduction. I integrate Kyle's (1985) model into a standard consumption-based asset pricing framework where the market makers are compensated for the risk of assets' fundamentals. Observing aggregate order flow, they update the belief about the marginal utility-weighted asset value, which resolves uncertainty gradually and results in an upward drift in market prices before announcements. I demonstrate that there is a strictly positive pre-FOMC drift if and only if the market makers require risk compensation.

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Section: Introductionsupporting

confidence: 83%

The Pre-FOMC Announcement Drift and Private Information: Kyle Meets Macro-Finance

Ying

2020

SSRN Journal

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“…Consistent with this interpretation,Boguth et al (2018) find that more attention is being paid to these particular FOMC meetings. also investigate the impact of SEP releases on monetary policy uncertainty, but focusing on the level instead of changes: They show that monetary policy uncertainty has declined since the FOMC started releasing the "Summary of Economic Projections.…”

supporting

confidence: 60%

Market-Based Monetary Policy Uncertainty

Bauer

Lakdawala

Mueller³

2019

ERWP

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An extensive literature studies the impact of monetary policy surprises-shifts in expected policy rates-on asset prices. This paper addresses the open question of how shifts in the uncertainty about future policy rates matter for the transmission of monetary policy to financial markets. To this end, we develop a novel measure of policy uncertainty based on derivative prices that can be used in event studies. We provide evidence for an FOMC uncertainty cycle, the systematic pattern of resolution of uncertainty on FOMC announcement days followed by a gradual ramp-up over the next two weeks. Furthermore, specific monetary policy actions have differential effects on uncertainty, with the most substantial shifts due to changes in the forward guidance provided by the FOMC. Changes in uncertainty have pronounced effects on asset prices, distinct from the effects of changes in expected policy rates. Moreover, the prevailing level of uncertainty determines the effectiveness of policy surprises: When uncertainty is low, monetary policy surprises have stronger effects on asset prices.

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“…We show that the pre-FOMC drift of Lucca and Moench (2015) has not only disappeared for announcements without press conferences as documented by Boguth et al. (2019) but also weakened in announcements with press conferences.…”

Section: Discussionmentioning

confidence: 71%

“…The top panel includes 131 announcements from September 1994 to March 2011, which is the Lucca and Moench (2015) (LM) sample period; all announcements in this sample period are without press conferences. The bottom panel includes 27 and 25 announcements with (blue line) and without (red line) press conferences, respectively, from April 2011 to September 2017, which is the ( Boguth et al., 2019 ) (BGM) sample period. The dashed lines represent 95% confidence bands around the mean returns.…”

Section: Discussionmentioning

confidence: 99%

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The disappearing pre-FOMC announcement drift

Kurov

Wolfe

Gilbert

2021

Finance Research Letters

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Highlights 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.

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Shaping Expectations and Coordinating Attention: The Unintended Consequences of FOMC Press Conferences

Cited by 88 publications

References 56 publications

The Pre-FOMC Announcement Drift and Private Information: Kyle Meets Macro-Finance

The Pre-FOMC Announcement Drift and Private Information: Kyle Meets Macro-Finance

Market-Based Monetary Policy Uncertainty

The disappearing pre-FOMC announcement drift

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