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Unconventional Monetary Policy and the Behavior of Shorts

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  • THOMAS MCINISH
  • CHRISTOPHER J. NEELY
  • JADE PLANCHON

Abstract

We investigate the behavior of shorts, considered sophisticated investors, before and after a set of Federal Reserve unconventional monetary policy announcements that spot bond markets did not fully anticipate. Short interest in agency securities systematically predicts bond price changes and other asset returns on the days of monetary announcements, particularly when growth or monetary news is released, indicating shorts correctly anticipate these surprises. Shorts also systematically rebalance after announcements in the direction of the announcement surprise when the announcement releases monetary or growth news, suggesting that shorts interpret these announcements to imply further yield changes in the same direction.

Suggested Citation

  • Thomas Mcinish & Christopher J. Neely & Jade Planchon, 2024. "Unconventional Monetary Policy and the Behavior of Shorts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 56(4), pages 805-835, June.
    • Handle: RePEc:wly:jmoncb:v:56:y:2024:i:4:p:805-835
    DOI: 10.1111/jmcb.13045
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G1 - Financial Economics - - General Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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