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

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  • Boguth, Oliver
  • Grégoire, Vincent
  • Martineau, Charles

Abstract

In an effort to increase transparency, the chair of the Federal Reserve now holds a press conference (PC) following some, but not all, Federal Open Market Committee (FOMC) announcements. Evidence from financial markets shows that investors lower their expectations of important decisions on days without PCs and that these announcements convey less price-relevant information. Correspondingly, we show that investors pay more attention to upcoming announcements with PCs. This coordination of attention can reduce welfare in models of the social value of public information. Consistent with theories of investor attention, the market risk premium is larger on days with PCs.

Suggested Citation

  • Boguth, Oliver & Grégoire, Vincent & Martineau, Charles, 2019. "Shaping Expectations and Coordinating Attention: The Unintended Consequences of FOMC Press Conferences," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 54(6), pages 2327-2353, December.
    • Handle: RePEc:cup:jfinqa:v:54:y:2019:i:6:p:2327-2353_2
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    Citations

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    Cited by:

    1. Kroencke, Tim A. & Schmeling, Maik & Schrimpf, Andreas, 2021. "The FOMC Risk Shift," Journal of Monetary Economics, Elsevier, vol. 120(C), pages 21-39.
    2. Sonya Zhu, 2023. "Volume dynamics around FOMC announcements," BIS Working Papers 1079, Bank for International Settlements.
    3. Indriawan, Ivan & Jiao, Feng & Tse, Yiuman, 2021. "The FOMC announcement returns on long-term US and German bond futures," Journal of Banking & Finance, Elsevier, vol. 123(C).
    4. Liu, Hong & Tang, Xiaoxiao & Zhou, Guofu, 2022. "Recovering the FOMC risk premium," Journal of Financial Economics, Elsevier, vol. 145(1), pages 45-68.
    5. Monaco, Eleonora & Murgia, Lucia Milena, 2023. "Retail attention and the FOMC equity premium," Finance Research Letters, Elsevier, vol. 53(C).
    6. Difang Huang & Yubin Li & Xinjie Wang & Zhaodong (Ken) Zhong, 2022. "Does the Federal Open Market Committee cycle affect credit risk?," Financial Management, Financial Management Association International, vol. 51(1), pages 143-167, March.
    7. Hunter Ng, 2024. "Strategic Control of Facial Expressions by the Fed Chair," Papers 2410.20214, arXiv.org.
    8. Gardner, Ben & Scotti, Chiara & Vega, Clara, 2022. "Words speak as loudly as actions: Central bank communication and the response of equity prices to macroeconomic announcements," Journal of Econometrics, Elsevier, vol. 231(2), pages 387-409.
    9. Bennett Schmanski & Chiara Scotti & Clara Vega, 2023. "Fed Communication, News, Twitter, and Echo Chambers," Finance and Economics Discussion Series 2023-036, Board of Governors of the Federal Reserve System (U.S.).
    10. Gu, Chen & Chen, Denghui & Stan, Raluca & Shen, Aizhong, 2022. "It is not just What you say, but How you say it: Why tonality matters in central bank communication," Journal of Empirical Finance, Elsevier, vol. 68(C), pages 216-231.
    11. Bodilsen, Simon & Eriksen, Jonas N. & Grønborg, Niels S., 2021. "Asset pricing and FOMC press conferences," Journal of Banking & Finance, Elsevier, vol. 128(C).
    12. Appel, Ian & Farre-Mensa, Joan & Simintzi, Elena, 2019. "Patent trolls and startup employment," Journal of Financial Economics, Elsevier, vol. 133(3), pages 708-725.
    13. Liu, Tianming & Xiong, Haifang & Li, Yifei & Wang, Zhiqiang, 2023. "The flight to safety during credit recovery: The role of implicit government guarantees," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    14. Curti, Filippo & Kazinnik, Sophia, 2023. "Let's face it: Quantifying the impact of nonverbal communication in FOMC press conferences," Journal of Monetary Economics, Elsevier, vol. 139(C), pages 110-126.
    15. Yun, Jaesun & Kwon, Kyung Yoon, 2023. "Biweekly performance of low-risk anomalies over the FOMC cycle," Finance Research Letters, Elsevier, vol. 58(PC).
    16. Martineau, Charles & Mondria, Jordi, 2022. "News Selection and Asset Pricing Implications," SocArXiv ame2f, Center for Open Science.
    17. Kurov, Alexander & Wolfe, Marketa Halova & Gilbert, Thomas, 2021. "The disappearing pre-FOMC announcement drift," Finance Research Letters, Elsevier, vol. 40(C).
    18. Gu, Chen & Kurov, Alexander & Stan, Raluca, 2023. "Monetary policy and uncertainty resolution in commodity markets," Finance Research Letters, Elsevier, vol. 55(PA).
    19. Jianhao Lin & Jiacheng Fan & Yifan Zhang & Liangyuan Chen, 2023. "Real‐time macroeconomic projection using narrative central bank communication," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(2), pages 202-221, March.
    20. Hayo, Bernd & Henseler, Kai & Steffen Rapp, Marc & Zahner, Johannes, 2022. "Complexity of ECB communication and financial market trading," Journal of International Money and Finance, Elsevier, vol. 128(C).
    21. Wang, Chen & Zhao, Kevin, 2024. "Pre-Refunding Announcement Gains in U.S. Treasurys," SocArXiv xucf8, Center for Open Science.

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