The effect of FOMC statements on asset prices

Farka, Mira; Fleissig, Adrian R.

doi:10.1080/02692171.2011.587111

Cited by 8 publications

(9 citation statements)

References 44 publications

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“…Authors find that due to economic and political uncertainty, the implied volatility index tends to increase prior to the information releases and return normal on the day of press releases. Moreover, studies (e.g., Farka & Fleissig, 2012;Reinhart & Simin, 1997;Rigobon & Sack, 2004;Wang & Mayes, 2012) examine the effects of uncertainty of the federal policy in terms of minutes of FOMC meetings and show that Feds' policy-rate-change related uncertainty causes significantly to the financial assets.…”

Section: Theoretical Framework and Literature Reviewmentioning

confidence: 99%

Does Policy Uncertainty Affect Equity, Commodity, Interest Rates, and Currency Markets? Evidence From Cboe’s Volatility Index

Shaikh

2020

Journal of Business Economics and Management

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Economic policy drives investment, production, employment, and other macroeconomic indicators of the economy. The study examines the equity, commodity, interest rates, and currency markets, taking into consideration the US economic policy uncertainty (EPU) index. The present work determines the association among policy uncertainty and volatility index, expressed in terms of generalized autoregressive conditional heteroscedasticity and period of empirical work spanning from 2000 to 2018. The results suggest that equity markets’ volatility tends to be very high based on a high degree of policy uncertainty. The findings on the commodity market indicate that crude oil and gold prices remain more volatile during the presidential election and financial crisis. One of the essential results shows that the 2000s boom, early credit crunch, Lehman’s collapse and recession, and fiscal policy battles have significantly affected the equity, currency, and commodity markets. The interest rates and currency markets have responded considerably to Feds’ and EPU index. The empirical outcome provides evidence that implied volatility index is a forward looking expectation of future stock market volatility, and it uncovers that policy uncertainty affects investor sentiment. The present work holds some practical implications for the government to formulate policies to regulate the US market.

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Section: Theoretical Framework and Literature Reviewmentioning

confidence: 99%

Does Policy Uncertainty Affect Equity, Commodity, Interest Rates, and Currency Markets? Evidence From Cboe’s Volatility Index

Shaikh

2020

Journal of Business Economics and Management

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“…Fourth, the impact of the FOMC announcement on Southeast Asian equity indexes was not statistically different between the two crises. This paper applies the quantification model developed by and Farka and Fleissig (2012). The two proxies used are target surprise and path surprise.…”

Section: Introductionmentioning

confidence: 99%

Impact of FOMC announcement on stock price index in Southeast Asian countries

Bao

Mateus²

2017

CFRI

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This paper examines the impact of Federal Open Market Committee (FOMC) announcements, which includes information about the targeted Federal fund rate and revision to the future path of monetary policy on Southeast Asian stock market performance. It compares these effects in two periods: the 1997 Asian financial crisis and the subprime mortgage crisis. To do this, a sample of five national equity market indexes is analysed over the period 1997-2013 covering 132 scheduled FOMC meetings. The results first show that all the stock markets examined do respond to information in FOMC announcements. Second, the target Federal fund rate has more impact on Southeast Asian stocks performance than information about the future path of monetary policy does. Third, different Southeast Asian equity markets respond similarly to targeting the Federal fund rate, while the responses to monetary policy differ from each other. Fourth, the response of each country to the FOMC announcement is not statistically different in the two periods of financial crisis.

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“…The FOMC, who determines government policies relevant to interest rates, meets roughly eight times a year and releases a statement after each meeting. The FOMC is known to be an important mover of markets, and economic research has found that equity and interest rate markets tend to move when FOMC communications are released (Farka and Fleissig, 2012;Gürkaynak et al, 2005;Mueller, 2015;Rosa, 2011) that the policy actions alone do not explain these responses (and thus the content of the text must be responsible) (Gürkaynak et al, 2005), and that the directions of market movements coincide with a human-coded measure of the sentiment expressed in the texts (Rosa, 2011). Writers in the finance industry and in the popular press have also examined word clouds of FOMC minutes (Cofnas, 2010;Durden, 2011) and have discussed the market implications of the total number of words included in FOMC minutes (Fitz-gerald, 2014;Kennedy, 2014;Wynne, 2013).…”

Section: Introductionmentioning

confidence: 99%

The Effects of the Content of FOMC Communications on US Treasury Rates

Rohlfs¹,

Chakraborty²,

Subramanian³

2016

Proceedings of the 2016 Conference on Empirical Methods in Natural Language Processing

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This study measures the effects of Federal Open Market Committee text content on the direction of short-and medium-term interest rate movements. Because the words relevant to short-and medium-term interest rates differ, we apply a supervised approach to learn distinct sets of topics for each dependent variable being examined. We generate predictions with and without controlling for factors relevant to interest rate movements, and our prediction results average across multiple training-test splits. Using data from 1999-2016, we achieve 93% and 64% accuracy in predicting Target and Effective Federal Funds Rate movements and 38%-40% accuracy in predicting longer term Treasury Rate movements. We obtain lower but comparable accuracies after controlling for other macroeconomic and market factors.

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The effect of FOMC statements on asset prices

Cited by 8 publications

References 44 publications

Does Policy Uncertainty Affect Equity, Commodity, Interest Rates, and Currency Markets? Evidence From Cboe’s Volatility Index

Does Policy Uncertainty Affect Equity, Commodity, Interest Rates, and Currency Markets? Evidence From Cboe’s Volatility Index

Impact of FOMC announcement on stock price index in Southeast Asian countries

The Effects of the Content of FOMC Communications on US Treasury Rates

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