Monetary Momentum / Andreas Neuhierl, Michael Weber.

Format:

Book

Author/Creator:

Neuhierl, Andreas.

Contributor:

National Bureau of Economic Research.

Weber, Michael (Professor of finance)

Series:

Working Paper Series (National Bureau of Economic Research) no. w24748.

NBER working paper series no. w24748

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2018.

Summary:

We document a large return drift around monetary policy announcements by the Federal Open Market Committee (FOMC). Stock returns start drifting up 25 days before expansionary monetary policy surprises, whereas they decrease before contractionary surprises. The cumulative return difference across expansionary and contractionary policy decisions amounts to 2.5% until the day of the policy decision and continues to increase to more than 4.5% 15 days after the meeting. Standard returns factors and time-series momentum do not span the return drift around FOMC policy decisions. The return drift is a market-wide phenomenon and holds for all industries and many international equity markets. A simple trading strategy exploiting the drift around FOMC meetings increases Sharpe ratios relative to a buy-and-hold investment by a factor of 4.

Notes:

Print version record

June 2018.