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Price Informativeness and FOMC Reversals

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  • Boguth, Oliver

Abstract

Building on the methodology of unbiasedness regressions, we show that stock-market returns on FOMC announcement days are abnormally uninformative about future prices. These results strongly contrast with returns to other asset classes on FOMC announcement days or market returns following other macroeconomic announcements such as employment, inflation, and GDP announcements. Standard predictive regressions show statistically and economically significant reversals of short-window returns following FOMC announcements (p<.01, R2=6.9%). We provide additional evidence that combining elements of theories of announcement-day information (Ai and Bansal, 2018) and price pressure (Hendershott and Menkveld, 2014) may help to explain the FOMC-return reversals.

Suggested Citation

  • Boguth, Oliver, 2022. "Price Informativeness and FOMC Reversals," SocArXiv zurfk_v1, Center for Open Science.
    • Handle: RePEc:osf:socarx:zurfk_v1
    DOI: 10.31219/osf.io/zurfk_v1
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