Charles Martineau's webpage

Noisy FOMC Returns? Information, Price Pressure, and Post-Announcement Reversals

Abstract:
Extending methods from microstructure studies, we show that aggregate stock market returns following FOMC announcements appear “noisy”. Standard predictive regressions confirm significant reversal of event-window returns by announcement-cycle end. Consistent with theories of announcement information and price pressure, currently distinct branches of the literature, reversal predictors include VIX changes, abnormal volume, and ETF flows. We further document sustained post-announcement trade volume, and show persistent effects of monetary policy surprises on post-event price dynamics. FOMC announcements inform markets but also affect prices through heightened liquidity demands, highlighting the importance of connecting impactful public information to aggregate price pressure in future theories.